S&P Picks and Pans: Fannie, Freddie, WaMu, Boeing, Lowe's, Altria

Analysts' opinions on stocks in the news Monday

From Standard & Poor's Equity Research

S&P DOWNGRADES SHARES OF FREDDIE MAC TO SELL FROM HOLD (FRE; 5.10):

The U.S. government seizes control of FRE, stripping shareholders of any governance rights. It will immediately acquire $1 billion of preferred stock. In addition, the government will receive warrants giving it 80% ownership of FRE. Further purchases will be triggered pending capital needs. We believe growing home loss rates will necessitate additional capital injections, further reducing shareholders' stakes. We are reducing our 12-month target price by $4.50 to $0.50, as we believe the government injections will continue to dilute current equity holders. -S. Plesser, K. Cole

S&P DOWNGRADES OPINION ON SHARES OF FANNIE MAE TO SELL FROM HOLD (FNM; 7.04):

The U.S. government seizes control of FNM, stripping shareholders of any governance rights. It will immediately acquire $1 billion of preferred stock. In addition, the government will receive warrants giving it 80% ownership of FNM. Further purchases will be triggered pending capital needs. We believe growing home loss rates will necessitate additional capital injections, reducing shareholders' stakes even further. We are reducing our 12-month target price by $6.50 to $0.50, as we believe the government injections will continue to dilute current equity holders. -S. Plesser

S&P MAINTAINS HOLD RECOMMENDATION ON SHARES OF WASHINGTON MUTUAL (WM; 4.27):

WM announces the ouster of CEO Kerry Killinger and the appointment of Alan Fishman. We are keeping our hold opinion and 12-month target price of $6. We still have concerns about WM's heavy concentration of home-equity and option-ARM loans - about 26% and 23% of WM's loan portfolio. We believe WM will need to further strengthen capital ratios to offset what, in our view, will be a period of elevated credit costs in 2008 and 2009. Our target price implies a price-to-book multiple of 0.45 applied to the current book value per share of $13.35, well below WM's historical average. -K. Cole, E. Oja

S&P MAINTAINS BUY OPINION ON SHARES OF BOEING CO. (BA; 62.58):

BA's 27,000 International Machinists Union member employees went on strike Saturday, halting the assembly of all new planes at BA. The company will continue to deliver planes assembled prior to the strike and provide spare parts and service. We estimate BA's commercial aerospace revenues at about $35 billion for 2008, excluding the effects of the strike, so even a short work stoppage will likely result in a significant revenue loss. But given BA's large backlog of planes, in particular the 737, 777, and yet-to-be-delivered 787, we expect BA to make concessions to avert a prolonged strike. -R. Tortoriello

S&P DOWNGRADES RECOMMENDATION ON SHARES OF LOWE'S COMPANIES TO HOLD FROM BUY (LOW; 28.04):

Shares have risen nearly 50% over the past two months and we now see them as fairly valued at 18 times our fiscal year 2010 (January) EPS estimate of $1.59. While we think the housing market is starting to show signs of stabilization, we think recovery will likely be a lengthy process. On a positive note, while we still project comp-store sales declines for the next four quarters, we expect improvement on a sequential basis. We are raising our DCF-based target price by $2 to $30 on long-term margin improvement, as we think LOW will continue to capture market share from peers as the market recovers. -M. Souers

S&P REITERATES STRONG BUY RECOMMENDATION ON SHARES OF ALTRIA GROUP (MO; 21.76):

MO agrees to buy UST (UST; 68.30) for about $11.7 billion in cash ($69.50 a share), pending approvals. MO expects deal to be accretive within a year of closing and sees $250 million in savings by 2011, primarily in SG&A. MO maintains guidance of 2008 operating EPS at $1.63-$1.67; it changed its share repurchase program to a 3-year $4 billion program, from a 2-year $7.5 billion, to facilitate the transaction. We think this is an attractive deal for shareholders, which should solidify MO's leading position in tobacco and provide additional revenue and earnings opportunities. We keep our $26 target price. -E. Kwon-CFA