S&P Picks and Pans: Best Buy, Ford, American Express, AK Steel, Xerox

Analysts' opinions on stocks in the news Wednesday

From Standard & Poor's Equity Research

S&P DOWNGRADES OPINION ON SHARES OF BEST BUY TO BUY FROM STRONG BUY (BBY; 22.05):

Citing an unprecedented decline in consumer demand, BBY has slashed its EPS projections for fiscal year 2009 (February) to $2.30-$2.90 from $3.25-$3.40. While we had been expecting a downturn in comps, the guidance was modestly below our expectations. As a result, we are lowering our fiscal year 2009 and fiscal year 2010 EPS estimates to $2.62 and $2.19, from $2.82 and $2.50. We are also cutting our DCF-based target price by $10 to $32. However, we continue to find the shares attractive, trading at about 10 times our fiscal year 2010 EPS projection, and think the BBY is poised for meaningful market share gains. -M. Souers

S&P REITERATES HOLD OPINION ON SHARES OF FORD MOTOR (F; 1.92):

We expect the U.S. government to provide liquidity assistance to the auto industry in the form of loans, loan guarantees or cash infusion in exchange for equity or warrants. We think the minimum practical amount for the industry would be $20-$25 billion, based on expected negative cash flow for General Motors (GM; 2.92) and Ford in 2009. Additional funds would be needed to accelerate restructuring and employee buyouts. We think a bailout may only delay the inevitable, but with so many jobs at risk in an already fragile economy, we think action sooner would be more prudent. -E. Levy-CFA

S&P KEEPS HOLD RECOMMENDATION ON SHARES OF AMERICAN EXPRESS (AXP; 22.40):

An unconfirmed report in the Wall Street Journal today says AXP has applied for about $3.5 billion in capital under the Troubled Asset Relief Program. This follows AXP's announcement Monday evening that it had been granted bank holding company status. We think the company is faced with rising customer defaults on its credit cards and lower consumer spending and it may be seeking capital because of its inability to securitize credit receivables in the current environment, limiting its funding options. We expect AXP shares to continue to trade at a discount to historical valuations. -S. Plesser, M. Albrecht

S&P DOWNGRADES RECOMMENDATION ON SHARES OF AK STEEL HOLDING TO SELL FROM HOLD (AKS; 9.26):

Our opinion change is based on a more pessimistic outlook for EPS. The price of AKS shares is lower this morning after the company's announcement that it is idling two of its plants until early-to-mid-January 2009 due to sharply lower demand for its products. On that basis, we are cutting our 2008 EPS estimate to $4.14 from $4.27 and trimming our 2009 forecast to $1.89 from $2.82. Based on our revised 2009 EPS forecast, we are reducing our 12-month target price to $9 from $16, as we believe that AKS will carry a lower p-e than peers due to its greater exposure to the auto industry. -L. Larkin

S&P DOWNGRADES OPINION ON XEROX CORP. SHARES TO SELL FROM HOLD, ON VALUATION (XRX; 6.67):

We project further moderation in the pace of spending on office equipment including printers, and are trimming our outlook for XRX. We lower our EPS estimates to $1.11 from $1.25 for 2008, and to $1.00 from $1.25 for 2009. Applying a target price/book ratio of 1.3, near the low end of the historical range to reflect slow industry conditions, to our forward estimate of tangible book value per share of $4.00, we arrive at a value just over $5 a share. We estimate higher valuation by our p-e analysis and, blending the measures, are lowering our 12-month target price to $6 from $9.50. -T. Smith-CFA