Markets & Finance

S&P Cuts Valero Energy to Hold


Plus: Analyst opinions on Bally Total Fitness and Manitowoc

From Standard & Poor's Equity ResearchValero Energy (VLO)

Downgrades to 3 STARS (hold) from 4 STARS (buy)

Analyst: Tina Vital

The size and ability to refine heavy sour crude feedstocks of this largest refiner in North America offer strategic and economic advantages, in our view. While U.S. refining margins narrowed in the fourth quarter, we expect they will widen and remain solid in 2007 and 2008 on limited upgrading of capacity worldwide amid increased demand for refined petroleum products. Blending our discounted cash-flow (DCF) and relative valuations, we are keeping our 12-month target price at $63, representing a projected enterprise value 5.6 times our 2007 EBITDA estimate, in line with peers.

Bally Total Fitness (BFT)

Downgrades to 2 STARS (sell) from 3 STARS (hold)

Analyst: E. Kolb

Bally announces a delay in filing its 2006 10-K, and says it may have to file Chapter 11 bankruptcy protection if it is unable to restructure its debt. As of 3/16/07, Bally's had about $45 million in cash and $827 million of outstanding debt. As of September 30, 2006, there was a shareholder deficit of $1.4 billion, partly on deferred revenue liabilities totaling $831 million. Bally expects to report a net loss for 2006, with membership revenue down 3%. Based on our view of weak finances and heightened risk, we are lowering our 12-month target price to 50 cents, from $3.

Manitowoc (MTW)

Reiterates 4 STARS (buy)

Analyst: A. Fiore, CFA

Manitowoc raises its 2007 EPS guidance to $4.20-$4.30, up 8% from a previous forecast of $3.85-$4.00. Moreover, the company anticipates that first quarter 2007 EPS will exceed the current Street view by about 10%. We think demand in the important crane market will be stronger than we previously anticipated and is likely driving the majority of the upside revision. We are increasing our 2007 operating EPS estimate to $4.25 from $4.00, our 2008 EPS estimate to $5.30 from $5.00, and boosting our 12-month target price to $70 from $62 based on our revised DCF and p-e analyses.


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