S&P Picks and Pans: Merrill Lynch, U.S. Steel, Amgen, Sirius Satellite, Coach

Analysts' opinions on stocks in the news Tuesday

From Standard & Poor's Equity Research

S&P UPGRADES OPINION ON MERRILL LYNCH SHARES TO HOLD FROM SELL (MER; 24.33):

Merrill Lynch announces sale of $11.1 billion of collateralized debt obligations. The sale reduces gross exposure to CDOs to $8.8 billion and net exposure to $1.6 billion. MER is also in the process of reducing counterparty exposure to monoline insurers, improving overall quality of hedges. The company also says it will raise at least $8.5 billion in common stock offering, but provisions on previous capital raises make it even more dilutive to current shareholders. Still, we think these actions are positive for long-term health of MER. We keep our target price at $25, as some risks still remain. -M. Albrecht

S&P RAISES OPINION ON SHARES OF UNITED STATES STEEL TO STRONG BUY FROM BUY (X; 160.98):

Our upgrade is based on lower share prices and a much more optimistic outlook for EPS. X posts second quarter EPS of $5.65, vs. $1.98, on a 60% sales gain, well above our $3.70 estimate on much better profits than we expected in domestic operations. EPS is benefiting from increased prices and a much higher operating rate. We increase our 2008 EPS estimate to $18.58 from $12.18 and 2009's EPS to $19.29 from $13.80 to reflect a much more positive outlook for pricing and margins. On our revised estimate for 2009, we raised our 12-month target price to $235 from $180. -L. Larkin

S&P UPGRADES SHARES OF AMGEN TO BUY FROM HOLD (AMGN; 63.27):

Q2 EPS of $1.13, vs $1.08, beats our estimate by $0.14, led by higher-than-expected anemia drug sales, ahead of FDA limits we see likely in 2nd half. Product sales rose 2%, beating our forecast, though Enbrel sales grew just 2% on wholesaler stocking and trimming of market share. We believe AMGN is well positioned to sustain recent momentum after positive pipeline data, and we expect shifting focus towards future growth. We raise our 2008 EPS estimate by $0.20 to $4.35, 2009's by $0.04 to $4.48, and our target price by $6 to $72 on updated p-e-to-growth analysis. -S. Silver

S&P MAINTAINS BUY OPINION ON SHARES OF SIRIUS SATELLITE RADIO (SIRI; 1.54):

Shares are down sharply on the closing of its merger with XM Satellite. Combined entity will become SIRIUS XM Radio, under SIRI symbol. We now see focus shifting to potential operating and financing challenges ahead for combined company amid proliferating consumer entertainment options, the specter of further equity dilution, SIRI's mixed Q2 pre-announcement. CEO Mel Karmazin affirms 2009 view for $400 million synergies, over $300 million in adjusted EBITDA, and positive free cash (before satellite capex). While near-term appears mixed, we see enhanced buying opportunity on sharp decline. -T. Amobi - CPA, CFA

S&P MAINTAINS STRONG BUY RECOMMENDATION ON SHARES OF COACH INC. (COH; 26.25):

June-quarter EPS of $0.50, vs. $0.42, meets our estimate. North American same-store sales rose 7% and indirect sales were up 11% as international grew 30%. COH is adding share of U.S. accessories market that is expanding at about 5%-10%. In 2009, COH plans 40 new North American stores, 10 in Japan, and 5 in China. Its product innovation supports monthly new lifestyle offerings at sharpened prices. We cut our 2009 EPS forecast $0.10 to $2.30 on lower sales growth and gross margin but see global growth opportunities for COH, with its 34% operating margins, highest in our specialty retail coverage. -M. Driscoll-CFA