Markets & Finance

S&P Picks and Pans: Citi, Mattel, Biogen, Medtronic, Telefonica


Analyst opinions on stocks making headlines Monday

S&P REITERATES STRONG BUY RECOMMENDATION ON SHARES OF CITIGROUP

From Standard & Poor's Equity Research

C; $46.22

Update: Following Citi's third-quarter conference call, we are lowering our 2007 EPS estimate by 7 cents to $3.82. Also, we are decreasing our 2008 EPS estimate by 18 cents to $4.89, and we are trimming our 12-month target price to $59 from $61. The reductions largely reflect our expectation for continued pressure on earnings caused by the turmoil in the credit markets. We believe weakness in securities and banking and the U.S. consumer segments will be partly offset by our expectation for strong results in global wealth management and transaction services.

S&P MAINTAINS STRONG BUY OPINION ON SHARES OF MATTEL

MAT; $22.45

Third-quarter EPS of 61 cents, vs. 62 cents one year earlier, is below our 70 cents estimate, but results are after a $40 million charge related to recent product recalls centered around lead-tainted merchandise. We are encouraged by a 3% increase in sales on growth at the Hot Wheels and Fisher-Price brands. We believe that the company will be able to restore consumer confidence in the safety of its products and that any impact on holiday sales will be minimal. We are lowering our full-year 2007 EPS estimate to $1.51 from $1.60. We are maintaining our 12-month target price of $29, based on historical analysis. /E. Kolb

S&P REITERATES HOLD OPINION ON SHARES OF BIOGEN IDEC

BIIB; $84.22

Biogen's board late Friday authorized management to explore the sale of the company, and it reported expressions of interest, including from Carl Icahn. An unconfirmed Wall Street Journal report says Icahn bid $80 per share. Though we see a sale as likely, and anticipate other bidders, we think the shares already reflect much of the premium we would expect, less than other recent deals, given slowing sales growth, as well as change of control provisions in Biogen's stake in Rituxan and Tysabri that need addressing. We raise our 12-month target price by $22 to $90, 7.5 times our 2008 sales estimate of $3.44 billion. /S. Silver

S&P MAINTAINS BUY OPINION ON MEDTRONIC SHARES

MDT; $50.60

Medtronic voluntarily recalls its Sprint Fidelis ICD lead due to potential fractures. Fidelis has been implanted in 235,000 patients and is Medtronic's primary lead for both pure ICDs and ICD/Pacemaker combination devices. Medtronic believes 5 patient deaths may be associated with the faulty leads. We think Medtronic will likely lose market share, and we see renewed pressure on the entire ICD category. We are keeping our fiscal 2008 (Apr.) EPS estimate of $2.71 and fiscal 2009's at $3.10, but cutting our target price by $7 to $60 on a forward P/E discount to peers to reflect our view of heightened investment risk. /R. Gold

S&P UPGRADES RECOMMENDATION ON AMERICAN DEPOSITARY SHARES OF TELEFONICA TO BUY FROM HOLD

TEF; $91.41

In our view, Telefonica not only enjoys a strong position in its core domestic operations, a source of most of the company's free cash flows, but it also offers investors an attractive portfolio of growth assets through its many international investments. The company continues to deliver solid top-line growth combined with EBITDA margins above 40% in its Spanish operations, compared with revenue and margin compression posted by most of Telefonica's European peers. Using a peer-average P/E-to-growth ratio, we are increasing our 12-month target price to $106 from $81. /C. Perea, A. Bensinger


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