Markets & Finance

S&P: Still Hold Ford, XM


Plus: Analyst opinions on Meritage Homes and American Electric Power

Ford Motor (F)

Reiterates 3 STARS (hold)

Analyst: Efraim Levy, CFA

Based on a preliminary report, before special items, Ford's first quarter loss from continuing operations of 9 cents, vs. EPS of 12 cents one year earlier, is much narrower than our $1.09 loss estimate. Cash balances rose, but interest expense should rise on more debt. We see cost reductions but expect U.S. market share to fall in 2007. Though we do not expect North American operations to be profitable in 2007 or 2008, and we see significant cash outflows from operations and restructuring during that period, we do believe Ford has enough liquidity to fund turnaround efforts.

XM Satellite Radio (XMSR)

Maintains 3 STARS (hold)

Analyst: Tuna Amobi, CPA, CFA

Before a one-time loss we estimate at 1 cent per share, the company's first quarter loss per share of 39 cents, vs. a 55-cent loss one year earlier, is in line with S&P and Street estimates. We see multi-year ramp up of installation in OEM automotive units (GM, Honda, Nissan, Toyota), vs. a dip in conversions and more retail weakness. XM affirms 9.0-9.2 million subscribers for 2007 and sees $111-$114 cost per subscriber (vs. a prior forecast of $108), and expects a $170-$180 million adjusted operating loss vs. $166 million, but positive 2008 EBITDA. With potentially formidable odds against regulatory approval of merger with Sirius (SIRI), our 12-month target price stays at $13.

Meritage Homes (MTH)

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

Analyst: Thomas Smith, CFA

Meritage reports first quarter EPS of 57 cents, vs. $2.86 one year earlier, on 32% lower revenue, exceeding our 34 cents estimate. We believe Meritage's regional exposure to Texas and Arizona is helping it outperform peers in the midst of a housing industry slowdown that we expect will persist into 2008. We are raising our 2007 and 2008 EPS estimates to $2.55 and $3.50, from $2.00 and $2.80. Applying a target price-to-book multiple of 1.1 times, near the low end of a historical range, to our forward book value estimate near $42, we are raising our 12-month target price to $46 from $37.

American Electric Power (AEP)

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

Analyst: Justin McCann

With AEP shares up about 17% year-to-date, we expect lower total return potential from their current level. first quarter operating EPS of 68 cents vs. 96 cents is in line with our estimate. The sharp decline reflects higher operation & maintenance expenses, and lower off-system sales amid planned outages at two coal-fired power plants for environmental retrofits. While we are maintaining our EPS estimate of $2.95 for 2007, we are raising our 2008 estimate 5 cents to $3.15. We are also boosting our 12-month target price by $5 to $54, a modestly premium-to-peers p-e of 17.1 times our 2008 estimate.

LP Units Of Enterprise Products Partners (EPD)

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

Analyst: Stephen Ham

Our change is on valuation. The units have risen 13% this year. Enterprise Products Partners reports March quarter operating EPS of $0.20 vs. $0.28, below our estimate of $0.24, reflecting 2% higher revenue but a rise in expenses and taxes. Increased NGL pipeline revenues from higher volumes were partly offset by lower revenues from natural gas pipelines tied to decreased gas prices and volumes. We are reducing our 2007 operating EPS estimate by $0.08 to $1.22 and 2008's by $0.06 to $1.44, but keep our target price of $33, based on a target yield of 6% and an enterprise value of 13 times our 2007 EBITDA estimate.

Countrywide Financial (CFC)

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

Analyst: Stuart Plesser

After Countrywide Financial's comments in its first quarter conference call, we are encouraged by moves to tighten lending standards, and believe it will deliver higher earnings for the remainder of 2007. This reflects as well, our belief that the secondary markets will turn more liquid, which should enable Countrywide Financial to achieve higher gain-on-sale margins. Based on the first quarter EPS miss, we are lowering our 2007 EPS estimate $0.18 to $4.00, but since we believe mortgage markets have stabilized, we are raising our 12-month target price $6 to $40, 10 times that estimate, in line with the historical average.


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