Analyst Picks and Pans: Fannie Mae, Freddie Mac, Genzyme

What Wall Street analysts are saying about selected stocks in the news Monday

Fannie Mae (FNM)

Freddie Mac (FRE)

FBR Capital Markets reiterates underperform on each

Despite a recent run-up in the stock prices of Fannie Mae and Freddie Mac, the government-controlled mortgage finance companies have "no fundamental value," FBR Capital Markets analyst Paul Miller said Aug. 31.

Freddie and Fannie shares have both nearly quadrupled in value this month, with hundreds of millions of shares changing hands daily. The surge came even though some analysts contend that shares of the companies are worth nothing, as their debts to the government are too heavy.

"There is no fundamental value remaining in (Fannie) and (Freddie), particularly since the government owns 80% of each company," wrote Miller in a note to investors.

Miller expects the government to invest even more in the companies in coming weeks beyond the $96.3 billion it has already injected. This capital has to be repaid if the two are going to be stand-alone enterprises, he said, but both are sinking under the weight of growing credit costs. "Both companies are under-reserved to face future losses," he said.

Shares are surging in expectation of a reverse stock split, Miller said, but he noted that the companies' management has said in regulatory filings that they did not favor such a move. Regulators, too, will not likely favor a reverse stock split, he said, as they don't want to "create a false sense of value" in the shares.

Genzyme (GENZ)

Robert W. Baird downgrades to neutral from outperform

Shares of Genzyme Corp. fell in premarket trade on Aug. 31 after Robert W. Baird analyst Christopher J. Raymond said more potential manufacturing delays could cut into sales of Cerezyme, a drug that treats Gaucher disease, an enzyme disorder that can result in liver and neurological problems.

In addition to downgrading the shares, Raymond cut his price target to $58 from $64. He feels the odds of continued delays at the company's Boston facility and longer lasting fallout from manufacturing delays are now higher.

In June, Genzyme temporarily shut down its production facility in the Boston neighborhood of Allston to clean up viral contamination that had been slowing down the process for making supplies of Cerezyme and Fabrazyme. The virus is not harmful to people, but was found in the bioreactors used to make the living cells that are in turn used to make the biotech-based treatments. Fabrazyme treats an inherited disorder known as Fabry disease, which is caused by the buildup of a particular type of fat in the body's cells.

Meanwhile, European regulators have now inspected the Allston plant.

"While continued snags with the Food and Drug Administration's review of Allston are one thing, now that EMEA (European regulatory body) has found issues at the plant, we are increasingly wary of further delay at this critical competitive juncture," Raymond said, in a note to investors.

He said he has "urged patience" but is "surprised" there are still issues at the plant.

Williams-Sonoma (WSM)

Pier 1 Imports (PIR)

Ethan Allen Interiors (ETH)

KeyBanc Capital Markets upgrades each to hold from underweight

Signs of an improving housing market and a more upbeat consumer prompted KeyBanc Capital Markets analyst Bradley Thomas to upgrade home furnishing retailers Williams-Sonoma, Pier 1 Imports, and Ethan Allen Interiors on Aug. 31.

"While risks to a sustained economic recovery remain, we are optimistic that we are in the early stages of a recovery that will benefit many names under our coverage," Thomas wrote in a client note. Thomas cited July's 7% increase in existing home sales compared with June and pointed out that home-related consumer spending tends to go hand-in-hand with housing data.

The analyst also lifted his 2009 and 2010 earnings estimates on Bed Bath & Beyond Inc. (BBBY).

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