S&P Picks and Pans: American Express, Alcoa, Citigroup, McDonald's, Starbucks, Sirius XM Radio, Liz Claiborne

Analysts' opinions on stocks in the news Tuesday

From Standard & Poor's Equity Research

S&P MAINTAINS HOLD RECOMMENDATION ON SHARES OF AMERICAN EXPRESS (AXP; 23.98):

AXP announces it has been granted bank holding company status by the U.S. Federal Reserve. We think this enhances AXP's funding profile and should help lower its borrowing costs. It should also allow the company to participate in the many government-sponsored programs coming on line expected to help the financial system. Newly issued senior debt will carry temporary guarantees, AXP can apply to receive funds through the TARP program, and it should be easier for AXP to increase a deposit base. However, we caution that default rates on AXP's cards continue to rise. -S. Plesser, M. Albrecht

S&P DOWNGRADES RECOMMENDATION ON SHARES OF ALCOA INC TO SELL FROM HOLD (AA; 11.78):

Our opinion change is based on valuation and a more pessimistic outlook for EPS. Shares of AA are down in premarket trading today after the company announced plans to reduce aluminum production by an additional 350,000 metric tons, bringing curtailed production to 15% of total capacity. On that basis, we are cutting our 2008 EPS estimate to $1.52 from $1.70. Also, we trim 2009's to $1.18 from $1.50, as we expect the production curtailment to extend into 2009. Based on our revised 2009 estimate, we are reducing our 12-month target price to $10 from $12. -L. Larkin

S&P MAINTAINS HOLD RECOMMENDATION ON SHARES OF CITIGROUP (C; 11.21):

Citigroup announces plans to modify about $20 billion in mortgages for about 500,000 homeowners who are current but may be at risk of falling behind. We view this as a positive step, but we remain wary of the markdowns Citi has taken on its securities portfolio and we believe it may realize more significant markdowns in coming quarters. We are keeping our $15 12-month target price, equal to roughly 0.83 times book value/share, below Citi's historical average, to reflect our view of a decline in investor confidence, uncertainty surrounding future writedowns and weakening international consumer spending. -S. Plesser, E. Oja

S&P RAISES OPINION ON MCDONALD'S CORP SHARES TO STRONG BUY FROM BUY (MCD; 56.56):

The shares have substantially given back gains early Monday following MCD's announcement that October comparable sales rose 8.2%. With the exception of next February, we think easy sales comparisons in upcoming months will allow MCD to continue to report strong sales gains, which we attribute to food service industry marketshare shifts away from full service options. We have factored in likely unfavorable forex benefit shifts in the fourth quarter and 2009 into our $3.70 and $3.80 EPS estimates for 2008 and 2009. We keep our DCF-based 12-month target price of $66. -M. Basham

S&P REITERATES STRONG BUY RECOMMENDATION ON SHARES OF STARBUCKS CORP. (SBUX; 9.90):

September-quarter operating EPS of $0.10, vs. $0.21, is below our $0.13 estimate. We think SBUX has largely completed initial steps in its transformation plan, which should enable it to boost profits at lower levels of comparable sales and be less reliant on company-financed growth. SBUX intends to reduce capex sizably in fiscal year 2009 (September) and pay down short-term debt. We now see 4% lower global comp-store sales in fiscal year 2009 (September), and lower our EPS estimate to $0.85 from $1.00. On higher assumed 12.3% weighted average cost of capital, vs. 11.7%, we lower our DCF-based target price by $5, to $19. -M. Basham

S&P MAINTAINS BUY OPINION ON SHARES OF SIRIUS XM RADIO (SIRI; 0.25):

Before $4.75 billion impairment charge of $1.88 per share, third quarter loss per share of $0.05, vs. $0.08 loss, matches our estimate. As SIRI reaffirms long-term post-merger targets, key third quarter pro forma metrics had few surprises, with declining subscriber acquisition costs helping to ease unit growth deceleration, pricing pressures. We think third quarter call offers much needed, if still inconclusive, reassurance on near-term refi of $960 million cumulative 2009 debt, which seems most crucial for near-term survival, beyond auto partner's mounting woes, anemic retail channel. We cut EV/sales-based target price by $1.50 to $0.50. -T. Amobi - CPA, CFA

S&P REITERATES SELL RECOMMENDATION ON LIZ CLAIRBORNE SHARES (LIZ; 6.06):

Third quarter adjusted EPS of $0.39, vs. $0.60, matching our estimate, and reiterates fourth quarter guidance of $0.19-$0.24. Sales of MEXX brand were down 15% excluding forex, and trailing 12-month sales per square foot dropped 6% at Lucky and 27% at Juicy. We do not expect these trends to end soon given deteriorating employment, consumer sentiment, and discretionary income. While the January 2009 re-launch of Liz Claiborne brand, designed by Issac Mizrahi is a plus, other portfolio constituents are likely to remain under pressure through 2009, and we expect more rapid brand maturation in this cycle. -M. Driscoll-CFA