S&P Picks and Pans: Ambac, Hormel, brokerages, JDS Uniphase, salesforce.com, Korn Ferry

Analysts' opinions on stocks in the news Thursday

From Standard & Poor's Equity Research

S&P MAINTAINS SELL RECOMMENDATION ON SHARES OF AMBAC FINANCIAL (ABK; 4.93):

We are lowering our target price on the shares of this beleaguered bond insurer by $1.50 to $4.50, and continue to recommend investors avoid the shares. Recent strength in the share price reflected, we believe, investor optimism on ABK's termination of a troubled structured credit transaction and on less negative than anticipated rating agency actions. We continue to believe ABK's structured credit unit is likely to incur outsized losses. Our target price assumes the shares trade at a discount to book value, in line with other troubled peers. -C. Seifert

S&P MAINTAINS HOLD RECOMMENDATION ON SHARES OF HORMEL FOODS (HRL; 35.14):

July-quarter EPS of $0.38, vs. $0.41, is in line with HRL's Aug. 9 $0.37-$0.39 pre-announcement. Sales rose 10%, including a 7% volume increase. Operating profit fell 2%, primarily on commodity cost pressures from feed and fuel in the Jennie-O Turkey Store segment. This segment had sales up 11% but operating profit down 61%. HRL also experienced cost pressures in its refrigerated foods segment despite price increases and strong fresh pork margins. We are keeping our EPS estimates of $2.24 for fiscal year 2008 (October) and $2.49 for fiscal year 2009 and maintain our 12-month $39 target price. -L. Braverman, CFA

S&P KEEPS ADVERSE FUNDAMENTAL VIEW OF INVESTMENT BANKING/BROKERAGE SUB-INDUSTRY:

An unconfirmed story in the Wall Street Journal reports that the NY Attorney General's office will increase its scrutiny of some investment banks that have not settled with regulators regarding their auction rate securities actions, including Goldman Sachs (GS; 158). Regulators are also investigating secondary dealers in these securities, including E*Trade (ETFC; 3) and TD Ameritrade (AMTD; 20). We do not expect major costs associated with these developments, but forced repurchases could tie up capital, and settlements could continue to weigh on the sector's outlook. -M. Albrecht

S&P MAINTAINS HOLD RECOMMENDATION ON SHARES OF JDS UNIPHASE (JDSU; 10.40):

June-quarter EPS of $0.01, vs. $0.04, is below our $0.06 estimate, with both sales and gross margins below our projections. We see JDSU benefiting from a continued expansion of broadband capacity as higher data rates are being delivered to the access network. However, we remain wary of a weak macroeconomic climate and carrier spending volatility. We are skeptical that JDSU can achieve its target of 10% operating margins by the end of 2008. And on revised relative analysis, accounting for a more challenging operating environment, we lower our 12-month target price by $2 to $11. -A. Bensinger

S&P MAINTAINS HOLD RECOMMENDATION ON SHARES OF SALESFORCE.COM (CRM; 57.63):

July-quarter GAAP EPS of $0.08, vs. $0.03, matches our estimate. Sales rose 49% to $263 million, $3.7 million above our projection. Despite the upside to our sales forecast, we note our concern over slowing growth for deferred revenues, which rose 49% to $479.6 million. This compares with 59% growth seen in both April-quarter and in year-ago quarter. We are lowering our fiscal year 2009 (January) EPS forecast $0.04 to $0.30, to reflect dilution from a recent acquisition and fiscal year 2010 by $0.02 to $0.65. We cut our target price by $5 to $65, a 5.5 enterprise value/sales ratio on our $1.4 billion fiscal year 2010 sales estimate, within historical range. -Z. Bokhari

S&P REDUCES RECOMMENDATION ON KORN/FERRY SHARES TO HOLD FROM BUY (KFY; 17.87):

Our outlook for KFY has been dimming as western Europe's economy begins to struggle. We see Europe increasing the challenges in KFY's business, which was already dealing with a U.S. labor market downturn. At the same time, we believe KFY's EPS downturn is limited by ongoing strength in its Asia/Pacific operations, and by what we view as efficent cost control actions. We are cutting our fiscal year 2009 (April) and fiscal year 2010 EPS estimates by $0.15 each, to $1.30 and $1.40. We are also trimming our target price by $2 to $19, on adjustments to our relative and DCF models. -M. Jaffe