Analyst Actions: Lehman, Wellcare, Dick's Sporting Goods

From Standard & Poor's Equity Research

JPMORGAN SEES ANOTHER QUARTERLY LOSS FOR LEHMAN

JPMorgan analyst Kenneth Worthington says the credit environment continues to be difficult, exacerbated by a slowdown in execution and origination. He says Lehman Brothers Holdings (LEH) continues to have significant exposure to mortgages and asset-backed securities, totaling $61 billion.

Worthington thinks LEH might write down about $4 billion this quarrer given deterioration in residential and commercial-related indices and his belief it has been selling assets especially in its commercial mortgage portfolio. He thinks management wants to leave its mortgage troubles behind and restore confidence, which it can best do by reducing its high-risk credit exposure.

He widens $2.35 2008 loss estimate to $6.77 loss, and cuts $4.00 2009 EPS to $3.64 EPS. He keeps a neutral opinion on the stock.

OPPENHEIMER RATES OUTPERFORM ON WELLCARE HEALTH PLANS

Oppenheimer analyst Carl McDonald says Wellcare Health Plans (WCG) is poised to move significantly higher today after the company reached an agreement with the U.S. Attorney Office for the Middle District of Florida and the Florida Attorney General's Medicaid Fraud Control Unit to pay just $35 million related to failure to meet certain minimum MLR requirements.

McDonald notes this is not a settlement: the agreement doesn't include penalties and fees or limit future civil or criminal actions. However, he believes if the government willing to agree to such a small amount, the likelihood of WCG being put out of business because of the investigation seems remote.

He says WCG shares trade at major discount to peers on a p-e basis, but with the company growing faster than peers and a settlement becoming more likely in the near term, it will be difficult to sustain such a discount. He has a $60 12-18 month price target on the stock.

BAIRD UPGRADES DICK'S SPORTING GOODS TO OUTPERFORM TO NEUTRAL

Baird analyst J. David Cumberland says he upgrades Dick's Sporting Goods (DKS) on valuation and strong long-term growth prospects.

He notes DKS is down 43.5% so far this year vs. -1.5% for S&P 400, -7.2% for S&P Retail Index; and down 29.8% since its first quarter report when fiscal year 2009 guidance was cut substantially. He says forward p-e (13.4) is 23% below the average for a group of high-growth specialty retailers, compared to 2-year average premium of 10%.

Cumberland thinks the valuation reflects a lack of confidence in estimates, but thinks suitable controls of costs and inventory should support EPS in a difficult backdrop. He expects second quarter results to reach low guidance for EPS ($0.34-$0.38).

He sees $1.27 fiscal year 2009 (January) EPS and $1.49 for fiscal year 2010. He has a $25 target price on the stock.