S&P Picks and Pans: Alcoa, Varian Medical, Lexmark, Infosys, Nvidia, Beazer Homes

Analysts' opinions on stocks in the news Tuesday

From Standard & Poor's Equity Research

S&P REITERATES SELL RECOMMENDATION ON SHARES OF ALCOA INC. (AA; 10.06):

AA posts fourth quarter loss of $0.26, vs. EPS of $0.37, before special items in both periods, on a 19% sales decline. The loss is wider than our loss estimate of $0.08 due to margin erosion in the aluminum and flat rolled units. Based on a less optimistic view for end markets, we are cutting our 2009 EPS forecast to $0.17 from $0.44. On our revised 2009 EPS projection, we are reducing our 12-mo target price to $9 from $10. We think the shares are vulnerable given our view that AA will not be able to maintain its dividend at the current rate. -L. Larkin

S&P KEEPS SELL OPINION ON SHARES OF VARIAN MEDICAL SYSTEMS (VAR; 34.06):

VAR says December-quarter net orders grew 12%-13%, with 10%-11% growth in oncology systems, 21% in X-Ray products and 15% in security and inspection. We are surprised by the strength, given mounting pressures on hospital capex budgets globally; we had projected about a 5% rise in net orders during the quarter. We are raising our December-quarter EPS estimate by $0.02 to $0.53, but keeping full fiscal year 2009's (September) at $2.45 to reflect our belief that orders in subsequent quarters will weaken materially. Based on forward p-e, price/sales and p-e-to-growth in line with peers, our target price stays $30. -R. Gold

S&P REITERATES SELL OPINION ON SHARES OF LEXMARK INTERNATIONAL (LXK; 26.11):

LXK lowers its forecast for fourth quarter revenue to a 17% decrease from a year ago, compared to earlier guidance for a low-to-mid-teens decrease and our forecast of a 16% drop. It cites slowing global economic conditions. The printer maker also lowered its fourth quarter GAAP EPS outlook to $0.19-$0.24, compared with the $0.45 we had expected. It plans to cut 375 jobs in a 2009 restructuring plan. We lower our GAAP EPS estimates to $2.65 from $2.87 for 2008, and to $2.35 from $2.40 for 2009, and reduce our 12-month target price to $23 from $26. Results for fourth quarter are scheduled for Jan. 27 release. -T. Smith-CFA

S&P REITERATES BUY OPINION ON ADSS OF INFOSYS TECHNOLOGIES (INFY; 27.71):

December-quarter earnings per ADS of $0.58, vs. $0.54, are $0.03 ahead of our estimate. We are lowering our fiscal year 2009 (March) revenue growth forecast to 12% from 15% on concerns about clients' IT spending plans and some pricing pressures. We see INFY widening margins, aided by lower attrition and lessening wage pressures. We are keeping our fiscal year 2009 earnings per ADS estimate of $2.22, but lowering fiscal year 2010's by $0.09, to $2.37. Even so, we raise our 12-month target price by $2 to $32, reflecting a peer-average 13.9 times our calendar 2009 earnings estimate of $2.30. -D. Cathers

S&P MAINTAINS HOLD RECOMMENDATION ON SHARES OF NVIDIA CORP. (NVDA; 7.72):

In a mid-quarter update, NVDA now projects revenues to fall 40%-50% from last quarter, far worse than previous guidance of a 5% decline and below our model. NVDA cites weakness in end-user demand and inventory reductions by its partners. On the news, we now see a fourth quarter loss per share of $0.14, cut from our prior estimate of $0.08 EPS. With our view of softer PC sales ahead, we now anticipate a $0.32 loss for fiscal year 2010 (January), much lower than our previous $0.52 EPS estimate. We also cut our target price by $4 to $10. However, we think share price largely reflects sliding expectations. -C. Montevirgen

S&P MAINTAINS HOLD RECOMMENDATION ON SHARES OF BEAZER HOMES USA (BZH; 1.35):

Preliminary fourth quarter results released by the company today confirm a very weak housing market. BZH reports 53% decline in home closings and a 56% decrease in net orders. While revenues were not released, we had estimated a 40% sales decline, which may be larger with order cancellations at 46%. In our opinion, BZH is more exposed to weaker housing conditions than its peers, given reports of its efforts to maintain a stable financial condition and liquidity. With $437 million in cash at yearend 2008, we believe BZH can manage its homebuilding operations through 2009. -K. Leon-CPA