S&P Stock Picks and Pans

S&P Picks and Pans: UPS, Dow Chemical, Motorola, Scotts Miracle-Gro, Avon, SanDisk


S&P REITERATES HOLD OPINION ON SHARES OF UNITED PARCEL SERVICE (UPS; 44.35):

Fourth quarter EPS of $0.83, vs. $1.07, misses our $0.87 estimate. UPS expects no meaningful improvement in the economy until 2010, and it is cutting its capex plans, freezing salaries and suspending its 401k matching. It expects a drag from less fuel surcharges and rising pension expense, and guides for first quarter EPS of $0.52-$0.68, below our $0.73 estimate, which we are now lowering to $0.60. UPS gives no full year guidance, and we have cut our 2009 estimate to $2.90 from $3.45. We maintain our 12-month target price at $50, 17 times our 2009 estimate, the low-end of the company's five-year p-e range. -J. Corridore

S&P MAINTAINS HOLD RECOMMENDATION ON SHARES OF DOW CHEMICAL (DOW 10.77):

Before special items, fourth quarter per share loss of $0.73, vs. $0.84 EPS, is well below our $0.24 EPS estimate. Sales fell 23% on a 17% volume drop. We cut our 2009 estimate to breakeven from $2.00 EPS. We believe DOW still wants to close the purchase of Rohm & Haas (ROH; 53.38, hold), although we think at a lower price than $18.8 billion agreed to last July. We think DOW also wants time to seek joint ventures for its commodity businesses and to extend the short-term debt to be used for the deal. DOW's CEO recently said a dividend cut is an option. On reduced outlook, we cut our target price by $2 to $14. -R. O'Reilly-CFA

S&P MAINTAINS HOLD OPINION ON SHARES OF MOTOROLA (MOT; 4.04):

MOT posts $0.01 fourth quarter loss from continuing operations, vs. $0.14 EPS, $0.03 worse than our EPS estimate. Revenues were lower than projected on worse-than-expected mobile device revenue as the other units performed well. We believe first quarter will be difficult for all MOT's segments, but we expect improvement in the home and networks division throughout the year, while mobile devices may not see improvement until later part of 2009. We are reducing our 2009 EPS estimate by $0.30 to a loss of $0.19. We are cutting our 12-month target price by $1 to $5, based on enterprise value/sales analysis. -J. Moorman, CFA

S&P REITERATES BUY OPINION ON SHARES OF SCOTS MIRACLE-GRO (SMG; 34.17):

SMG posts December-quarter loss per share of $0.88, vs. $0.89 loss, narrower than our estimate of a $0.97 loss. Revenues rose 3% on higher sales in the company's global consumer and global professional businesses. Margins widened on lower manufacturing inputs of fertilizer and diesel fuel. We see SMG continuing throughout fiscal year 2009 (Sep.) to benefit from a more favorable sales mix, new product offerings, lower fertilizer and energy costs, and restructuring undertaken in fiscal year 2008. We are maintaining our fiscal year 2009 EPS estimate of $2.50 and increase our target price by $4 to $40 on revised DCF analysis. -A. Compton

S&P MAINTAINS HOLD RECOMMENDATION ON SHARES OF AVON PRODUCTS (AVP 20.19):

Fourth quarter operating EPS of $0.55, vs. $0.45, is $0.06 below our estimate. Weakening consumer spending in some major markets and a forex translation swing from plus 7% in the third quarter to minus 11% in fourth quarter overshadows fourth quarter improvement in operational efficiencies and good growth in local currency in Latin America and China. Margins were also hurt by forex transactional issues; for example, AVP ships euro-based product to UK and Central and Eastern Europe and dollar-based product to Canada. We reduce our 2009 EPS estimate by $0.24 to $1.86 and our p-e-based 12-month target price by $3 to $24. -L. Braverman, CFA

S&P REITERATES HOLD RECOMMENDATION ON SHARES OF SANDISK (SNDK; 8.75):

SNDK reports fourth quarter per-share loss of $8.25, vs. EPS of $0.45, much wider than our $0.63 loss estimate. The miss reflects negative product gross margin, well below our projection, and much larger impairment charges. We are widening our 2009 loss estimate by $1.03 to a loss of $1.46, based on our expectation for above-average price deflation, reflecting industry oversupply, and our expectation of weak demand. We are lowering our target price by $4 to $9, based on a revised peer-discount ratio of price-to-sales at 0.9 times applied to our 2009 sales per-share forecast of $9.76. -R. Khalid, CFA

All of the views expressed in this research report accurately reflect the research analyst's personal views regarding any and all of the subject securities or issuers. No part of analyst compensation was, is or will be, directly or indirectly related to the specific recommendations or views expressed in this research report. Standard & Poor's Regulatory Disclosure

Any advice, analysis, or recommendations contained in articles labeled "Insight from Standard & Poor's" reflect the views of Standard & Poor's, which operates separately from and independently of BusinessWeek Online. It is possible that BWOL may from time to time publish information that is not consistent with advice, analysis, or recommendations that are published by Standard & Poor's. Standard & Poor's and BusinessWeek Online are each units of The McGraw-Hill Companies, Inc.


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