S&P Picks and Pans: Citigroup, Xerox, J&J, Toll Brothers, US Bancorp

Analysts' opinions on stocks in the news Monday

From Standard & Poor's Equity Research

S&P MAINTAINS HOLD OPINION ON SHARES OF CITIGROUP (C; 3.77):

The federal government agrees to guarantee $306 billion of Citigroup's distressed assets and inject $20 billion in fresh capital. Citi will absorb the first $29 billion in losses in this portfolio. In return, the government will receive $7 billion of preferred stock, and warrants with a strike price of $10.61. Citi also agrees not to pay a common dividend exceeding $0.01 for the next three years. Although the move further boosts Citi's capital ratios, we are concerned that losses may eventually exceed the government's backstop. We are lowering our target price $1 to $7, a below historical 0.39 times book value per share. -S. Plesser

S&P RAISES OPINION ON SHARES OF XEROX TO HOLD FROM SELL (XRX; 5.60):

XRX guides for 2009 EPS between $1.00 and $1.25, citing headwinds from economic conditions and volatile currency fluctuations. We maintain our EPS estimate for the year at $1.00, based on our outlook for slack demand in the printer industry. We foresee XRX restructurings helping the cost structure, but believe the initial expenses for reorganization add near-term uncertainty. We also note the company's expectation of rising pension costs for 2009. We are also maintaining our $1.11 EPS estimate for 2008 and we keep our our 12-month target price of $6. -T. Smith-CFA

S&P REITERATES STRONG BUY OPINION ON SHARES OF JOHNSON & JOHNSON (JNJ; 58.59):

JNJ agrees to acquire Omrix Biopharmaceuticals (OMRI ; 24.59, NR) for $438 million cash. A maker of biosurgical and immunotherapeutic products, OMRI has deals with JNJ's Ethicon division, which is developing biologic-based products to control post-operative bleeding. Pending approvals, we expect deal to close in December, and see it breakeven to slightly dilutive in 2009. JNJ also just received a positive opinion on new psoriasis drug from European regulators. We lower our target price by $5, to $75, 15.8 times our 2009 estimate, in line with peer large-cap diversified healthcare stocks. -H. Saftlas

S&P REITERATES BUY OPINION ON TOLL BROTHERS SHARES (TOL; 15.46):

Despite the recent selloff of the shares, we view TOL as superior to peers, with its strong liquidity and $1.5 billion in cash, and with most of its debt not maturing until 2011. We believe TOL's large land holdings relative to peers may serve the company well should the housing market recover in the next 12-18 months. Many of its properties are located in attractive coastal markets where land acquisitions and municipal approvals are challenging. We also believe TOL has the strongest position in the luxury segment, which we think may recover ahead of mainstream housing. -K. Leon-CPA

S&P MAINTAINS HOLD RECOMMENDATION ON SHARES OF US BANCORP (USB; 23.85):

After the market closed Friday, USB took over Downey Savings and Loan Association and PFF Bank & Trust, adding roughly $12 billion in deposits. The move further strengthens USB's customer base, and demonstrates its financial strength, supporting our belief that it will survive the credit crunch. That said, given our outlook for further credit deterioration, particularly as it relates to commercial mortgages, we are reducing our 2009 EPS estimate by $0.07 to $2.15. We also lower our target price by $5 to $27, 12.5 times that estimate, in line with USB's historical average. -S. Plesser