S&P Picks and Pans: GM, Morgan Stanley, Sovereign Bancorp, Wachovia, Travelers

Analysts' opinions on stocks in the news Monday

From Standard & Poor's Equity Research

S&P REITERATES SELL OPINION ON GENERAL MOTORS SHARES (GM; 4.89):

Based on unconfirmed reports in the New York Times and Wall Street Journal, GM has independently discussed possible alliances or mergers with both Ford (F; 2.00) and Cerberus Capital Management's Chrysler LLC. Talks with Ford appear to have ended. It is not clear to us how a Chrysler transaction would be structured, or at what price. Given the marketplace and restructuring challenges faced by the automakers, we think a merger would be counterproductive. On the other hand, if GM would get access to Cerberus's capital, we could see positives for the automaker. -E. Levy-CFA

S&P MAINTAINS HOLD OPINION ON SHARES OF MORGAN STANLEY (MS; 9.68):

MS shares are indicated to open strong today after news that Mitsubishi UFJ (MTU; 6.70) completed its $9 billion investment for a 21% stake in MS. The terms changed slightly from the prior agreement, and MTU will now receive $7.8 billion in convertible preferred shares, with a $25.25 conversion price, and $1.2 billion in non-convertible preferred shares; each with a 10% dividend. While the revised terms are more onerous on MS, we prefer these new conditions to the alternative, which would have been no new capital. We are keeping our hold recommendation and $18 target price. -M. Albrecht

S&P MAINTAINS HOLD RECOMMENDATION ON SHARES OF SOVEREIGN BANCORP (SOV; 3.81):

Shares are up in premarket today after an unconfirmed report in the WSJ that Banco Santander (STD; 13.00) was in talks to buy SOV at roughly the same price as Friday's close of $3.81 per share, or $2.53 billion. We are a little surprised that SOV would be willing to sell itself at current prices, with shares having fallen over 60% this month. But in the current banking environment, we think that SOV may not be able to negotiate a higher price. We are keeping our $6 target price and hold opinion and are uncertain as to possible terms of any potential sale. -K. Cole-CFA

S&P MAINTAINS HOLD OPINION ON SHARES OF WACHOVIA CORP. (WB; 5.15):

WB intends to to issue shares of preferred stock to Wells Fargo (WFC; 28.00) without shareholder approval and, by doing so, consummate the merger. The transaction would normally require shareholder approval; however WB's board of directors believes that waiting for such approval would "seriously jeopardize the viability of WB." The Fed has also approved the merger, removing the last major regulatory hurdle. We believe that WFC is WB's best alternative for a merger, as WFC does not plan to split WB up. Our target price remains $5, a slight discount to the $5.30 price of the deal. - S. Plesser

S&P MAINTAINS STRONG BUY RECOMMENDATION ON TRAVELERS COMPANIES (TRV; 30.50):

We are lowering our third quarter and full 2008 operating EPS estimates by $0.80 each, to $0.45 and $4.85. This largely reflects third quarter hurricane losses, partly offset by some favorable reserve development in other lines. Though not entirely immune to the credit crisis, we view TRV's balance sheet as relatively stronger than many peers and also believe the company is well positioned to benefit from AIG's woes. Our $50 target price, cut $5 today, assumes the shares trade at 1.3 times estimated 2009 tangible book and 8.7 times our $5.75 operating EPS estimate for 2009, the low end of historical averages. -C. Seifert