S&P Picks and Pans: Citigroup, Lowe's, Goldman Sachs, Covidien, Gilead Sciences

Analysts' opinions on stocks in the news Monday

From Standard & Poor's Equity Research

S&P MAINTAINS HOLD RECOMMENDATION ON SHARES OF CITIGROUP (C; 9.25):

In an unconfirmed report, Dow Jones reports that the size of Citigroup's proposed, near-term job cuts, through layoffs and attrition has been increased to about 50,000, from earlier figures of 10,000. Citi is hosting a town hall meeting for employees today, in New York. On our concerns about possible future securities writedowns, we are keeping our target price of $15, which is based on a 0.83 times multiple on Citi's Sept. 30 equity book value per share of $18.11. This is a discount to Citi's historical multiples, and to most peers. -S. Plesser, E. Oja

S&P LIFTS OPINION ON SHARES OF LOWE'S COMPANIES TO BUY FROM HOLD, ON VALUATION (LOW; 19.13):

October-quarter EPS of $0.33, vs. $0.43, is $0.03 above our estimate. Comp-store sales declined 5.9%, and we expect challenging macroeconomic conditions will lead to negative comps throughout fiscal year 2010 (January). We are lowering our fiscal year 2009 and fiscal year 2010 EPS estimates to $1.51 and $1.36, from $1.54 and $1.55, and reducing our DCF-based target price to $25 from $30. However, LOW continues to gain marketshare, and we expect expense leverage once the housing market stabilizes. Trading at under 14 times our fiscal year 2010 EPS estimate in what we expect to be its cyclical earnings trough, we find the shares attractive. -M. Souers

S&P MAINTAINS HOLD RECOMMENDATION ON SHARES OF GOLDMAN SACHS (GS; 63.54):

It was announced over the weekend that top executives at Goldman Sachs have voluntarily decided to forgo their 2008 bonuses in the wake of the downturn in the financial markets. The executives will receive their base salaries, and it appears bonuses will still be paid for the rest of the firm's workforce. In light of the increased scrutiny on Wall Street compensation, we are encouraged by the move and believe it is likely other top financial firms will follow suit. We maintain our 12-month target price of $95, roughly 1.0 times our 12-month tangible book value projection, in line with peers. -M. Albrecht

S&P KEEPS BUY OPINION ON SHARES OF COVIDIEN LTD. (COV; 37.40):

September-quarter operating EPS of $0.73, vs. $0.62, is ten cents over our estimate. Sales were in line, but operating costs, net interest expense and income tax rate were lower than we projected. At current rates, we think forex will negatively impact fiscal year 2009 (September) sales by 4%-6%, but anticipate that there will be some offset to earnings from lower raw material costs and tight operating cost controls. We are lowering fiscal year 2009 sales projection from $11.0 billion to $10.1 billion, EPS estimate by $0.10 to $3.00, and cutting our target price by $20 to $43 based on forward PEG of 1.4 times, modestly above peers. -R. Gold

S&P REITERATES BUY OPINION ON SHARES OF GILEAD SCIENCES (GILD; 46.91):

Teva Pharmaceuticals (TEVA; 43.09) files for permission to manufacture and market a generic version of Truvada, attempting to invalidate two of GILD's patents on the drug. GILD claims Truvada is protected by 10 patents, all of which would need to be invalidated before a generic could be marketed. We expect GILD to file a patent infringement lawsuit, which would block FDA approval until at least 2011, and note Truvada's patents will not expire until 2017. As a result, we do not expect TEVA's actions to result in a marketed drug. We keep our 12-month target price at $56. -S. Silver