S&P Picks and Pans: AIG, Wal-Mart, Hovnanian, Ciena

Analysts' opinions on stocks in the news Thursday

From Standard & Poor's Equity Research

S&P MAINTAINS HOLD RECOMMENDATION ON SHARES OF AMERICAN INTERNATIONAL GROUP (AIG; 22.58):

Unconfirmed reports in Marketwatch and other media outlets speculate that AIG may consider selling or spinning off a significant amount of troubled assets. We believe such a transaction would provide a catalyst for the shares, but we think AIG would need to raise additional capital to support it. In our view, the company has an outsized exposure to the mortgage market, compared to peers. We do not see a quick or easy resolution to this issue. We are raising our target price by $3 to $26; 1 times estimated 2009 tangible book value - below historical averages. -C. Seifert

S&P REITERATES BUY RECOMMENDATION ON SHARES OF WAL-MART STORES (WMT; 60.66):

August comp-store sales growth of 3.0% (ex-fuel) exceeds our 2.0% estimate. We expect September comp-store sales to grow 2.9%, near high end of WMT's 2%-3% guidance range, based on our expectation that consumers will continue trading down to lower-priced retailers in an adverse economic environment, and with back-to-school demand accelerating at August end because of a later school year start. With demand holding up well despite declining benefit from stimulus checks, we raise our fiscal year 2009 (January) EPS forecast by $0.03 to $3.51, and target price by $3 to $67 on DCF and p-e analyses. -J. Agnese

S&P DOWNGRADES HOVNANIAN ENTERPRISES SHARES TO SELL FROM HOLD (HOV; 7.75):

HOV's $2.67 July-quarter loss, vs. $1.27 loss, which includes $112 million in one-time charges related to land impairments and write offs of land option contracts, is wider than our $1.03 loss estimate. All of HOV's regions showed a sequential decline in units delivered and revenue, which gives us concern that market conditions have weakened again. With reduced backlog, we forecast a sales decline of 31% in fiscal year 2008 (October) and a decrease of 19% in fiscal year 2009. Assuming a 0.63 times price to book, near other small builders, we are lowering our target price to $6.50 from $9.50. -K. Leon-CPA

S&P MAINTAINS HOLD OPINION ON SHARES OF CIENA CORP (CIEN; 13.90):

July-quarter EPS of $0.29, vs. $0.37, is two cents below our estimate, mainly on higher stock option expense. While July-quarter sales beat our forecast, CIEN is seeing order delays from more disciplined customer spending amid a softening macroeconomic climate, and the company guides for October-quarter sales at $190-$210 million, below $226 million we had projected. While we view weakness as temporary, given a continued increase in network traffic, we see lower sales volume leading to drastically reduced operating margins. We cut our fiscal year 2008 (October) EPS forecast to $1.08 from $1.40, and our target price by $6 to $18. -A. Bensinger