S&P Picks and Pans: UPS, Kodak, UAL, NYSE EuroNext, Magna International

Analysts' opinions on stocks in the news Tuesday

From Standard & Poor's Equity Research

S&P LOWERS RECOMMENDATION ON SHARES OF UNITED PARCEL TO HOLD FROM BUY (UPS; 66.26):

UPS cuts second quarter guidance to $0.83-$0.88 from $0.97-$1.04, citing fuel prices, which have reduced package demand and led to a mix shift towards lower-margin products. We had thought UPS would benefit from increased investor interest in logistics stocks in advance of an improving economy. It is now our view that that recovery will take longer than we earlier expected. We are cutting our 2008 EPS estimate to $3.75 from $4.00 and our 12-month target price to 70 from 84, 18.7 times our 2008 EPS forecast, at low-end of UPS's historical p-e range, to reflect our view of oil and economic risks. -J. Corridore

S&P MAINTAINS HOLD RECOMMENDATION ON SHARES OF EASTMAN KODAK (EK; 14.20):

Shares are up 15% today as EK sets $1 billion stock buyback plan, equal to about 25% of outstanding shares. The company also says it received a $581 million tax refund from the IRS related to the audit of claims filed for 1993-1998. The company plans to use the refund proceeds and cash on hand to fund the buyback. We think the repurchase plan indicates a strong belief by management that EK shares are undervalued. But while we do expect the company to repurchase its shares, we note that EK has not committed to a timeframe for doing so. -E. Kolb, J. Peters-CFA

S&P CUTS FUNDAMENTAL OUTLOOK ON AIRLINES SUB-INDUSTRY TO NEGATIVE FROM NEUTRAL:

We no longer think a material reversal in oil prices is likely. As a result, we expect the 10 largest U.S. carriers to lose $5.0 billion in 2008, after $3.1 billion in profits in 2007. We think U.S. airlines are back in survival mode, with large cash usage likely, but we do not see any of the majors filing for bankruptcy in the next 12 months. We expect their shares to remain under pressure. We have a strong sell opinion on Alaska Air (ALK; 17.14), and sells on UAL Corp. (UAUA; 6.20) and Pinnacle Airlines (PNCL; 3.40). Our only buy in this sub-industry is Southwest Airlines (LUV; 13.90). -J. Corridore

S&P REDUCES RECOMMENDATION ON SHARES OF UAL CORP. TO SELL FROM BUY (UAUA; 6.02):

It had been our view that United, as one of the airlines beaten down the most by oil, could benefit from a popping of the oil bubble. We also thought industry capacity changes would lead to meaningful pricing increases, helping offset oil costs. We now view oil as unlikely to materially drop, and think UAUA could run into liquidity issues next year. We think company still has among the highest costs in industry despite spending three years in bankruptcy before emerging in 2007. We are cutting our 12-month target price to 4.50 from 12 on revised enterprise value/EBITDAR analysis. -J. Corridore

S&P MAINTAINS HOLD RECOMMENDATION ON SHARES OF NYSE EURONEXT (NYX; 56.12):

NYX announces that it will pay $250 million for a 25% stake in Qatar's Doha Securities Market which operates Qatar's Doha stock market. We believe the investment fits well with NYX's strategy of broadening its international footprint. Indeed, we look for NYX to use the Doha market as a hub to grow its presence in the Middle East. Separately, we are reducing our 12-month target price for NYX by 5 to 70, 20.6 times our 2008 EPS estimate, a discount to historical levels to reflect our regulatory concerns, and lower trading volumes. -S. Plesser

S&P REDUCES RECOMMENDATION ON SHARES OF MAGNA INTERNATIONAL TO SELL FROM HOLD (MGA; 64.54):

Despite expected growth outside the U.S. and favorable currency translation, we believe MGA, with more than half of its revenues in the U.S., will be penalized by lower sales and production at automakers here. General Motors (GM; 13.06) is its largest customer, with Ford (F; 5.33) and Chrysler accounting for 10% of 2007 sales. We are cutting our 2008 EPS estimate by $0.56 to $6.44, and lowering our 12-month target price by 22 to 61, 9.5 times that estimate, based on historical and peer p-e analyses. Despite a 2.2% dividend yield, we view MGA shares as overvalued. -E. Levy, CFA