S&P Picks and Pans: EA, Take-Two, Genentech, GTX, Jackson Hewitt

Analysts' takes on stocks in the news Monday

From Standard & Poor's Equity Research

S&P DOWNGRADES OPINION ON SHARES OF ELECTRONIC ARTS TO SELL FROM HOLD (ERTS; 47.67):

We view cautiously ERTS's unsolicited offer to acquire Take-Two Interactive (TTWO) for $26 per share in cash. TTWO's profitability has been inconsistent, with most of its earnings from the Grand Theft Auto franchise. We believe ERTS would have difficulty keeping key employees, including Grand Theft developers, following a merger. The apparent eagerness to accomplish the deal raises questions for us about ERTS's progress in developing internal intellectual property. We are lowering our target price by 3 to 45 to reflect increased risks and lower industry multiples. - J.Yin

S&P MAINTAINS HOLD RECOMMENDATION ON SHARES OF TAKE-TWO INTERACTIVE (TTWO; 17.36):

TTWO has rejected Electronic Arts' unsolicited takeout offer of $26 in cash as inadequate and opportunistic, coming just prior to the release of Grand Theft Auto IV. Though the bid represents a 50% premium to TTWO's Friday closing price, we believe TTWO has some negotiating leverage. The company has a couple of key internally developed franchises that ERTS lacks. We are raising our 12-month target price to 28 from 19, based on our belief that ERTS will raise its bid in order to complete the deal.- J.Yin

S&P REITERATES HOLD OPINION ON SHARES OF GENENTECH (DNA; 71.59):

The FDA grants accelerated approval for Avastin in treating metastatic breast cancer, despite a prior negative advisory panel recommendation. DNA will be able to market the drug while the FDA reviews subsequent data before granting full approval, which we view as likely. We see this development removing the key overhang on DNA shares and we expect the newsflow on label expansion for Avastin and Rituxan to continue to drive shares. We are raising our 2008 EPS estimate to $3.25 from $3.15, 2009's to $3.79 from $3.61, and our 12-month target price by 9 to 85 on p-e analysis. -S.Silver

S&P REITERATES STRONG BUY OPINION ON SHARES OF GTX (GTXI; 18.92):

The shares are up sharply this morning as GTXI announces positive Phase III results for lead candidate Acapodene for treating side effects of androgen deprivation therapy in prostate cancer patients. GTXI plans to file for FDA approval by mid-year and we expect approval, given the study's FDA-approved protocol, and the drug's established safety profile. We expect a positive result from a second Acapodene study for prostate cancer prevention, as well, by full analysis in 2009, but see potential for positive interim result this quarter. We keep our 12-month target price at 27. - S.Silver

S&P UPGRADES OPINION ON SHARES OF JACKSON HEWITT TAX SERVICE TO BUY FROM HOLD (JTX; 21.71):

Ahead of JTX's February-quarter earnings release, scheduled for Mar. 4, we continue to forecast EPS of $1.04 vs. $0.83. Due to the uncertainty that we see from the pending IRS ruling on refund anticipation loans, and the possibility that the revenue potential of this segment of JTX's business is diminished, we are cutting our 12-month target price by 6 to 29. But the shares have fallen about 37% in three months, which we believe is an exaggerated response to these concerns, presenting investors with a good risk/reward opportunity. Thus, we are upgrading our recommendation on valuation. - J.Peters-CFA