S&P Keeps Hold on Chicago Merc

Plus: analyst opinions on Post Properties, Alcatel-Lucent, Pacific Sunwear, Allstate and AIG

From Standard & Poor's Equity Research

Chicago Mercantile Exchange (CME): Reiterates 3 STARS (hold)

Analyst: Jason Willey

In response to a competing bid from IntercontinentalExchange (ICE), Chicago Merc has increased its offer for CBOT Holdings (BOT) by 16%. Under new terms of the Chicago Merc/CBOT agreement, Chicago Merc would swap 0.35 of its shares for each CBOT share and repurchase 12% of the post-merger shares at $560. CBOT's board has reaffirmed its recommendation in favor of the merger with Chicago Merc. We see increased likelihood of CBOT holders accepting Chicago Merc's revised offer, and we continue to view the deal as a long-term positive for Chicago Merc.

Post Properties (PPS): Upgrades to 3 STARS (hold) from 2 STARS (sell)

Analyst: Royal Shepard

Shares have risen this morning after an unconfirmed report by Bloomberg News that PPS is considering a takeover offer. While we have a negative view of PPS's position in the Atlanta and Dallas residential markets, we do think its high-end assets should represent value to a potential suitor, and we would expect management to seriously consider a possible deal. We are raising our target price by $14 to $55, based on our estimate of net asset value in view of recent market transactions, and assuming a 4.75% 1-year cash yield. We view the shares as fairly valued.

Alcatel-Lucent ADS (ALU): Reiterates 3 STARS (hold)

Analyst: C.VanDerElst

ALU sees mid-single digit revenue growth during 2007 in constant currencies. Given our view of the company's comprehensive product portfolio, we see it benefiting from the emergence of convergence technologies. We believe ALU has particular relative strengths in optics, broadband, IP networks, WiMAX and cable. However, we believe the bulk of the market is still in wireless network rollouts, where ALU has to regain lost market share. In addition, we see continued price pressure and slow market growth for telecom equipment in general. Our DCF-based 12-month target price is $14.

Allstate (ALL): Maintains 5 STARS (strong buy)

Analyst: Cathy Seifert

ALL says that on July, 1, 2007 it will stop offering new homeowners' coverage in California, though it will continue to cover existing policyholders. We view this move as positive, and applaud ALL's efforts to reduce catastrophe exposure. We note that California has been an important market for ALL, but homeowners' insurance nationwide accounts for less than 25% of the company's business. We think refined pricing, reduced catastrophe exposure and proactive capital management will provide a catalyst for ALL shares. Our target price of $75 is a discount-to-peers 9.4 times our 2008 estimate.

Pacific Sunwear (PSUN): Downgrades to 2 STARS (sell) from 3 STARS (hold)

Analyst: Jason Asaeda

April same-store sales fell 16.3% at PacSun and 18.8% at demo concepts, against tough year-ago comparisons of 14.6% and 9.5% increases, respectively. We think inclement weather and an earlier spring break this year also dampened sales of surfwear. Given resulting markdowns, PSUN projects an April-quarter loss of 4-5 cents, compared to our prior 5 cents EPS estimate. Also given ongoing execution risk that we see in merchandising at both concepts, we are cutting our fiscal year 2008 (January) EPS estimate by 13 cents to $1.02; and our 12-month target price by $2 to $18 on peer-p-e valuation.

American International Group (AIG): Maintains 4 STARS (buy)

Analyst: Cathy Seifert

AIG reports $1.68, vs. $1.29, first-quarter operating EPS, besting consensus but shy of our estimate. Results were driven by 33% higher property-casualty profits amid favorable underwriting and faster overseas growth, a doubling of asset management profits, and a greater contribution from investment activities, including private equity and hedge fund. We are raising our 2007 operating EPS estimate by 20 cents to $6.35, and we see $7.05 in 2008. We are also lifting our 12-month target price by $5 to $85, which assumes shares trade at 2.1 times estimated 2007 tangible book, in line with peers.