Markets & Finance

S&P Picks and Pans: Mattel, WaMu, Intel, Nokia


Analyst opinions on stocks making headlines Monday

S&P UPGRADES RECOMMENDATION ON SHARES OF MATTEL TO STRONG BUY FROM HOLD

From Standard & Poor's Equity Research

MAT; $21.09

We think shares of Mattel have suffered due to the company's recent toy recalls and, with the shares' current price, we view it as a buying opportunity. We believe Mattel will remain a toy industry leader and the recent recalls, although disappointing, reflect the company's proactive methods. We only expect a minimal impact on holiday sales this season and are keeping our 2008 EPS estimate at $1.72. Applying a p-e multiple of 17 times, below Mattel's historical average, that we think adequately reflects any near-term risk, we are raising our 12-month target price to $29 from $27. /E. Kolb

S&P MAINTAINS SELL OPINION ON SHARES OF WASHINGTON MUTUAL

WM; $34.36

In an investor conference earlier today, WaMu announces that 2007 provisions will likely exceed its earlier estimate of $1.5-$1.7 billion by $500 million. The company also announces that a markdown of loans in its held-for-sale portfolio, which were transferred to its held portfolio, will likely reduce third-quarter results by roughly $200 million. Given that we had already expected provisions to run higher than guidance, we are maintaining our 2007 EPS estimate of $3.41. We are also keeping our target price at $33, roughly 9.7 times our 2007 EPS estimate, below historical levels. /S. Plesser

S&P REITERATES STRONG BUY OPINION ON SHARES OF INTEL CORP.

INTC; $25.66

Intel announces a third-quarter update, stating that it now expects sales to be $9.4-$9.8 billion, up from previous guidance of $9-$9.6 billion, and gross margins to be at the upper end of its previously stated guidance of 52% plus-or-minus a couple of points. Intel says the higher outlook is a result of stronger-than-expected demand for its computing products. We see strength in computing demand continuing in the 2nd half, and we are raising our 2007 EPS estimate by 2 cents to $1.16 on our moderately higher gross margin forecast. /C. Montevirgen

S&P DOWNGRADES OPINION ON AMERICAN DEPOSITARY SHARES OF NOKIA TO SELL FROM HOLD

NOK; $33.94

We are lowering our opinion on Nokia due to our concerns about a valuation that we view as stretched, given the difficulties we expect the company to face expanding and defending its successful handset business. Within the high end of the handset market, where we estimate Nokia has a 48% global market share, we see increased competition from smartphones, including a pending European launch of the iPhone that could add challenges. We are leaving our 12-month target price at $32, based on a blend of our discounted cash-flow and relative p-e analyses that values Nokia at a premium to peers. /I. Soderbom

S&P MAINTAINS BUY OPINION ON SHARES OF FANNIE MAE

FNM; $62.93

Senator Charles Schumer plans to introduce a bill to temporarily loosen growth constraints on the two government sponsored enterprises, Fannie Mae and Freddie Mac (FRE; $59.30) . We believe Fannie would benefit from the bill's passing, as its retained portfolio is currently capped at $727 billion. The bill also calls for a temporary increase in the amount of loans that Fannie and Freddie can purchase, currently capped at $417,000. It is unclear whether the bill will be passed, as the opposition contends that raising the cap will add more risk to the government-sponsored enterprises (GSEs) and take away from their original charter. /S. Plesser

S&P MAINTAINS SELL OPINION ON SHARES OF COUNTRYWIDE FINANCIAL

CFC; $18.21

Countrywide announces that it will reduce its workforce by as much as 12,000 in an effort to pare down costs so that they are commensurate with declining mortgage originations. The cuts represent roughly 20% of Countrywide's current workforce. We believe the move is prudent, as originations will likely decline not only due to a weak housing market but also because the company is attempting to become a mostly-prime home lender, originating largely agency-qualifying loans. We will update. /S. Plesser


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