S&P Picks and Pans: Apple, AT&T, MasterCard, Darden, Texas Instruments, Ford

Analysts' opinions on stocks in the news Tuesday

From Standard & Poor's Equity Research

S&P UPGRADES RECOMMENDATION ON SHARES OF APPLE INC. TO BUY FROM HOLD (AAPL; 181.61):

AAPL announces next generation iPhone products with faster performance, more features and significantly lower pricing, which should stimulate unit sales if the rollout proceeds as planned on July 11. Expansion into as many as 70 countries by the yearend selling season should also aid revenue and increase brand awareness. Higher volume production should help margins. We are raising our EPS estimates to $5.33 from $5.30 for fiscal year 2008 (September), and to $6.60 from $6.50 for fiscal year 2009. We are also lifting our 12-month target price to 210 from 200, based on our updated p-e analysis. -T. Smith, CFA

S&P MAINTAINS STRONG BUY OPINION ON AT&T SHARES (T; 37.56):

After AT&T's call to discuss the impact of the new iPhone, being released in July at a more consumer-friendly price, we are updating our forecasts. AT&T will retain all related data revenues, which should raise revenue growth. However, we believe that subsidized handset costs and commissions will limit operating margin expansion. We are lowering our 2008 and 2009 EPS estimates by $0.12 each to $3.08 and $3.33, respectively. While we see benefits from improving customer loyalty and adding new ones, we reduce our 12-month target price by 1 to 44 on our view of higher operational risk. -T. Rosenbluth

S&P LOWER RECOMMENDATION ON SHARES OF MASTERCARD TO HOLD FROM BUY (MA; 289.38):

Our downgrade reflects concern about ongoing litigation. Yesterday, it was revealed that Discover (DFS; 15.15) is seeking roughly $6 billion in damages from a 2004 lawsuit against MA and Visa (V; 82.08), asserting that anticompetitive rules limited its growth. Although we believe the claim is excessive, we think it will likely act as an overhang on MA shares. In addition, we note that American Express (AXP; 44.60) still has not released the amount of its claim against MA on similar grounds. We lower our target price by 30, to 330, or 30.1 times our 2009 EPS estimate of $10.96. -S. Plesser

S&P RAISES OPINION ON SHARES OF DARDEN RESTAURANTS TO STRONG BUY FROM BUY (DRI; 31.64):

Although our restaurant industry outlook remains negative, we think DRI is oversold after a decline since mid-May that has resulted in DRI's enterprise value slipping to its current 6.4 times our fiscal year 2009 (May) EBITDA estimate of $980 million to $1 billion. We are trimming our EPS forecasts for fiscal years 2008 and 2009 by $0.05 and $0.10, respectively, to $2.80 and $2.95. We also lower our DCF-based target price by 3, to 41, which still suggests a 30% upside from DRI's current price. Our target price is also supported by an enterprise value/EBITDA multiple of 8, indicating fair value at $41-$42. -M. Basham

S&P REITERATES HOLD OPINION ON SHARES OF TEXAS INSTRUMENTS (TXN; 31.33):

TXN provides updated second quarter guidance, with sales and earnings expectations modestly above our model. It now projects sales between $3.33-$3.46 billion, vs. previous guidance of $3.24-$3.50 billion, as healthy analog sales offsetting softness in wireless handset chips. TXN now expects EPS between $0.43-$0.47 vs. $0.42-$0.48. We raise our second quarter EPS estimate $0.01 to $0.45. While we remain cautious given wireless handset trends and anticipated market share loss, we see healthy growth in other businesses balancing results. We will provide an update after TXN reports quarterly results. -C. Montevirgen

S&P MAINTAINS HOLD OPINION ON SHARES OF FORD MOTOR COMPANY (F; 6.05):

Kirk Kerkorian's Tracinda Corp. announces that its $8.50 tender offer for Ford shares drew over one billion shares, and that it will purchase 20 million shares, increasing its stake to about 5.5%. The offer was a modest premium to Ford shares when originally launched, but the share price has retreated over 20% since then, and therefore we are not surprised at the large response. We maintain our view that Ford must stabilize its volumes, but believe it may well see North American losses in 2009. We maintain our 12-month target price of $8.00 based on peer comparisons. -E Levy, CFA