Markets & Finance

S&P Stock Picks and Pans: Countrywide, PETsMART, Charter, Cephalon


Analyst opinions on stocks making headlines Thursday

From Standard & Poor's Equity ResearchS&P MAINTAINS SELL OPINION ON SHARES OF COUNTRYWIDE FINANCIAL

CFC; $21.29

Countrywide announces that it is drawing down its entire $11.5 billion short-term credit facility to bolster its liquidity. Besides experiencing a deterioration of conditions in the secondary mortgage market, the company is facing difficulties in tapping financing sources to run its operations. Indeed, the cost for Countrywide to borrow funds has gone up significantly over the last few months. We believe that the severity of Countrywide's liquidity crunch will reflect the duration that the secondary market for mortgage loans remains illiquid. We are maintaining our 12-month $20 target price. /S. Plesser

S&P REITERATES BUY OPINION ON SHARES OF PETSMART

PETM; $29.83

Excluding one-time items, July-quarter EPS of 36 cents, vs. 27 cents one year earlier, is 6 cents higher than our estimate, driven by strong gross margin improvement. While July-quarter comparable-store sales increased in line with our 4.0% projection, we expect PETsMART's planned exit from its best-performing equine departments to lead to same-store-sales growth of only 2.0% in October-quarter. However, we continue to favor PETsMART's leadership position in a rapidly-growing industry, and are raising our fiscal 2008 (ending January) and fiscal 2009 EPS estimates to $1.68 and $1.92 from $1.65 and $1.90. We maintain our 12-month discounted cash-flow (DCF)-based target price of $38. /M. Souers

S&P MAINTAINS SELL OPINION ON SHARES OF CHARTER COMMUNICATIONS

CHTR; $2.42

We see a skeptical reaction to the filing that controlling holder Paul Allen is mulling strategic options, given Charter's high debt and tight credit markets. In moves likely to cause further equity dilution, Charter sets a dividend of 1 preferred share for each common share, and hikes the authorization for public class A shares to 10.5 billion from 1.75 billion and for super-voting class B shares, all held by Allen, to 4.5 billion from 750 million. In a separate maneuver, which we view as negative for corporate governance, Charter sets a new rights plan limiting the ability to own more than 5% of class A sares. /T. Amobi - CPA, CFA

S&P REITERATES STRONG BUY OPINION ON SHARES OF CEPHALON INC.

CEPH; $68.19

Cephalon announces positive Phase III data for Fentora in chronic non-cancer breakthrough pain indications. The company plans to submit the data as part of a supplemental new drug application with the FDA to expand Fentora's label in the fourth quarter. This development was anticipated, and we continue to view Fentora as a key growth driver for Cephalon, extending its pain franchise from currently approved cancer pain indication, helping to offset sales declines from now-generic Actiq. We expect approval for Fentora and oncology drug Treanda in 2008. We keep our target price at $90. /S. Silver


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