S&P Stock Picks and Pans

S&P Picks and Pans: Starbucks, Dell, Allstate, T.Rowe Price, Qualcomm, Black & Decker


S&P LOWERS OPINION ON STARBUCKS SHARES TO BUY FROM STRONG BUY (SBUX; 9.51):

After the company's December-quarter conference call, we reached the following conclusions. New coffee competition has likely had only a small effect on SBUX, chiefly during the breakfast daypart, so that sales declines have been primarily from the weak economy, as most of its customer base remains extremely loyal. The decision to increase store closures to almost 1,000 is appropriate in the current weak global economy, but also signals that global conditions will remain difficult for some time. Based on a blend of peer valuations and our DCF model, we cut our target price by $4 to $15. -M. Basham

S&P DOWNGRADES OPINION ON DELL SHARES TO HOLD FROM BUY (DELL; 10.88):

DELL announces a pretax expense of $135 million for restructuring as part of a long-term plan to cut costs and optimize the siting of operations and personnel. The company also plans a non-cash expense of $145 million for stock-based compensation. We are lowering our fiscal year 2009 (January) operating EPS estimate from $1.39 to $1.33, partly to account for the options expense. We are also reducing our fiscal year 2010 EPS forecast to $1.30 from $1.45, as we dim our outlook for PC demand and consider cost-structure adjustments at DELL. We are trimming our 12-month target price to $12 from $13. -T. Smith-CFA

S&P DOWNGRADES OPINION ON SHARES OF ALLSTATE CORP. TO SELL FROM HOLD (ALL; 29.64):

Fourth quarter operating EPS of $0.97, vs. $1.24, misses our $1.38 estimate and consensus. Full 2008 operating EPS of $3.22,vs. $6.47, also fell short of our $3.60 forecast. We attribute these shortfalls primarily to a sharper-than-expected drop in investment income, which fell 18% in fourth quarter. At current levels, we view the shares as overvalued in light of what we see as ALL's outsize level of illiquid (level 3) assets vs. peers. We are raising our target price by $2 to $23, 0.9 times estimated 2009 book, a discount to peers that we view as warranted in light of ALL's less liquid balance sheet. -C. Seifert

S&P LOWERS RECOMMENDATION ON SHARES OF T. ROWE PRICE GROUP TO SELL FROM HOLD (TROW; 33.40):

Fourth quarter EPS of $0.09, vs. $0.68, is below our $0.33 estimate. Assets under management declined 20% sequentially, and TROW saw net client outflows as redemptions picked up. Investment losses also hurt results, and we think unrealized losses could continue to pressure results in 2009. We expect poor sales due to recent fund underperformance and we note the company continues to add headcount as revenues fall, which is likely to pressure margins. We are lowering our 2009 EPS estimate to $0.88 from $1.47 and cutting our target price by $12 to $24. We think the shares are overvalued. -M. Albrecht

S&P REITERATES SELL OPINION ON QUALCOMM SHARES (QCOM; 36.82):

Before one-time investment impairments, we calculate QCOM's December-quarter EPS of $0.38, vs. $0.46, above our $0.36 estimate. Revenues and operating income were higher than our forecast, but QCOM expects chipset shipments to be pressured as the handset end market declines in fiscal year 2009 (September). We are cutting our fiscal year 2009 EPS projection by $0.28 to $1.37, inclusive of stock option and strategic investment costs, and believe QCOM's guidance will prove conservative. But based on revised p-e analysis to reflect higher peer multiples, we raise our 12-month target price by $2 to $30. -T. Rosenbluth

S&P MAINTAINS HOLD OPINION ON SHARES OF BLACK & DECKER (BDK; 32.80):

Shares are off about 15% this morning after BDK's weak first quarter EPS guidance. Fourth quarter EPS is $0.73, vs. $2.94, beating our $0.71 estimate. BDK sees only $0.05-$0.15 first quarter EPS, with a 20% sales decline and unfavorable forex. We expect an 18% sales decrease in 2009 and are lowering our EPS estimate to $2.00 from $3.70 and 2010's to $4.00 from $5.00. BDK should benefit from costs controls but with lower sales, we estimate operating margins of 4% in 2009 compared to $7.5% in 2008. Applying a 2010 p-e of 9, below historical range and near peers, we are lowering our target price to $36 from $45. -K. Leon-CPA

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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