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http://www.businessweek.com/stories/2004-01-20/s-and-p-downgrades-fannie-mae-to-hold

Markets & Finance

S&P Downgrades Fannie Mae to Hold


Fannie Mae (FNM): Downgrades to 3 STARS (hold) from 4 STARS (accumulate)

Analyst: Erik Eisenstein

Fannie Mae posted fourth-quarter operating earnings per share of $1.77, vs. $1.66, a penny below S&P's estimate and 2 cents above the Street's estimate. A lower-than-expected loss on debt pre-payment nearly offset higher administrative expenses than S&P forecasted. S&P sees this trend for dominating in 2004 and is raising the operating earnings per share estimate by 6 cents, to $8.01. S&P expects meaningful mortgage portfolio growth to resume by the second quarter. S&P is leaving the 12-month target price at $79, however, given the greater-than-usual interest rate and political risk. With only moderate upside potential to S&P's target, S&P is taking a more cautious approach.

J.P. Morgan (JPM): Reiterates 4 STARS (accumulate)

Analyst: Mark Morgan

J.P. Morgan posted fourth-quarter earnings per share of 89 cents, vs. a loss of 20 cents, above S&P's 73 cents earnings per share estimate. Strong growth in investment banking, private equity, and service fees boosted revenues above S&P's forecast. Reserve releases added about 8 cents to earnings per share and expense control was improved. Given the expected dilution from J.P. Morgan's pending purchase of Bank One, subject to approvals, S&P says the earnings per share estimates stays at $3.00 for 2004 and $3.40 for 2005. S&P's 12-month target price is $44, based on shares trading at 13 times S&P's 2005 estimate, in line with the peer average, and reflecting a view that earnings will become less volatile.

Advanced Micro Devices (AMD): Maintains 4 STARS (accumulate)

Analyst: Thomas Smith

The chip maker posted fourth-quarter earnings per share of 9 cents, before a 3 cents gain on cost adjustment, vs. a loss of $2.49, above S&P's breakeven estimate. Revenue rose 76% year-over-year, and 26% quarter-over-quarter, reflecting strong sales for all chip lines and significant progress in flash memory. S&P is raising the 2004 earnings per share estimate to 55 cents, from 30 cents, and is upping the 2005 estimate to $1.25, from $1.00. However, AMD's capital spending is set to more than double in 2004, hurting the cash flow story even as earnings perk up. S&P's 12-month target price remains $22 based on a price-to-sales analysis.


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