S&P Picks and Pans: Merrill, Microsoft, Boeing, Centex, Corning

Analyst opinions on stocks making headlines Wednesday

From Standard & Poor's Equity Research

S&P REITERATES BUY OPINION ON SHARES OF MERRILL LYNCH

MER; $62.63

While we believe Merrill faces a difficult operating environment and has a higher risk profile, we think its share price undervalues the franchise. We believe the firm's global businesses, excluding its fixed-income exposure, have shown resilience in the face of tough markets, and we believe it has taken steps to address risk management deficiencies. We are reducing our 2007 EPS estimate to $2.89 from $6.51 on the loss reported for third quarter, but our 2008 estimate remains $8.60. We cut our target price $11 to $79, or 1.8X our lowered book value projection, below historical levels. /M. Albrecht

S&P REITERATES STRONG BUY OPINION ON SHARES OF MICROSOFT

MSFT; $31.02

Microsoft is to post September-quarter results after market close tomorrow. We are projecting 14% revenue growth to $12.4 billion and EPS growth of 9% to 38 cents. Worldwide PC shipments rose 15.5% during third quarter, according to research group IDC, which should bode well even though the enterprise adoption of Vista has been slower than expected. We see the Online Services Business increasing at least 20% following the aQuantive acquisition. We see double-digit revenue growth in other businesses, including Entertainment and Devices, aided by the launch of Halo 3, which boosted sales of Xbox 360 by 25%. /J. Yin

S&P MAINTAINS BUY RECOMMENDATION ON SHARES OF BOEING

BA; $95.00

Boeing says it has sent more employees to suppliers to resolve bottlenecks for 787 as part of plan to resolve supply chain difficulties. We believe the company's $100B-plus 787 backlog means potential rewards outweigh risks. Boeing also says it expects a decline in cash flows in 2008 from the 787 delay will be fully recouped in 2009. We are raising our 2007 EPS estimate by 16 cents to $5.11, but lowering 2008's by 24 cents to $5.76 on lower revenue and higher R&D costs from the 787 delay. We see Boeing's defense business doing well, with potential for a large win on the Air Force's new tanker plane. /R. Tortoriello

S&P MAINTAINS HOLD OPINION ON CENTEX SHARES

CTX; $24.47

Centex posted a September-quarter operating loss of 18 cents vs. EPS of 72 cents, before asset impairments and writedowns of $983 million for homesites and land deposits, narrower than our 25 cents operating loss estimate. Revenues fell 33.2%, driven by weak demand in all regions. Cancellation rate declined by 200 basis points from the June-quarter to 35.4%. We see extended sales incentives driving positive sales growth. We are widening our estimate for fiscal 2008 (Mar.) to a loss of $9.00 from a loss of 95 cents. We see Centex with $500 million in cash by the end of fiscal 2008 and we believe it will weather the storm and gain share when housing recovers. /K. Leon, CPA

S&P MAINTAINS STRONG BUY OPINION ON CORNING SHARES

GLW; $23.47

Third-quarter EPS of 38 cents vs. 27 cents is one cent above our estimate. Revenues were slightly lower while operating income was higher on expense control. Telecom recovered as we expected, and we see the LCD display segment continuing to benefit from tight supply, as Corning runs at peak capacity and demand remains high. We are lowering our 2008 EPS estimate 3 cents to $1.53 on modestly higher R&D, and despite our view of strong fundamentals. This remains a rise from $1.36 we see in 2007. We are reducing 12-month target price $2 to $31 on P/E adjustments. We view Corning shares as very attractive. /T. Rosenbluth