Markets & Finance

S&P Picks and Pans: Bear Stearns, J&J, Genentech, Sallie Mae, UPS


Analyst opinions on stocks making headlines Tuesday

S&P REITERATES HOLD OPINION ON SHARES OF BEAR STEARNS

From Standard & Poor's Equity Research

BSC; $120.86

According to an unconfirmed story reported by the Associated Press, a Chinese regulator and a company executive have each stated that China Citic Bank Corp. is bidding for a stake in Bear Stearns. We believe that Citic, part of a financial trust controlled by the Chinese government, may be in search of a foothold in the U.S. financial markets. We don't believe Bear Stearns management is searching for an outside investor in the firm at this time, nor do we believe the company faces a liquidity shortfall. We are keeping our target price at $135, 1.5 times 12-month projected book value, a discount to peers. /M. Albrecht

S&P MAINTAINS BUY OPINION ON SHARES OF JOHNSON & JOHNSON

JNJ; $65.18

Third-quarter operating EPS of $1.06 vs. 98 cents beats our view by 6 cents. Currency-neutral sales growth of 9.7% met our forecast, while better-than-expected margins and share buybacks accounted for the upside, in our view. We think the drug business will still face generic threats and competitive pressures, but the coronary stent business should stabilize by mid-2008. Assuming lower costs, fewer shares and reduced tax rate, we boost our 2007 EPS estimate by 9 cents to $4.14, 2008's by 10 cents to $4.35, and our target price by $6 to $74 based on a peer-average P/E-to-growth applied to our new 2008 view. /R. Gold

S&P REITERATES BUY OPINION ON SHARES OF GENENTECH

DNA; $75.98

After option expense, third quarter EPS of 67 cents vs. 55 cents exceeds our 65 cents estimate, led by 37% higher Avastin sales, besting our $582 million view by $15 million, and higher royalties from ex-US sales. However, results from Rituxan, Herceptin and Lucentis all missed our forecasts. Despite our optimistic view, we see an emerging reliance on new uses for Avastin and Rituxan, providing 54.2% of product sales, up from 51.6% in 2006, amid slowing trends from other drugs. We trim our 2007 EPS estimate by one cent to $2.70 and 2008's to $3.28 from $3.42, and lower our 12-month P/E-based target price by $7 to $89. /S. Silver

S&P MAINTAINS HOLD OPINION ON SHARES OF SALLIE MAE

SLM; $46.24

The JC Flowers-led consortium that had agreed to buy SLM at $60 a share has proposed that both sides walk away from the deal. JC Flowers had attempted to renegotiate the price to $50 after adverse government regulation, but SLM countered by suing the buyers, attempting to force a completion of the deal at its original terms or to receive a $900M break-up fee. Based on SLM's resolute stance, we doubt the deal will be consummated; the breakup-fee is still an open question. We are lowering our 12-month target price $5 to $45, 16.7 times our 2008 EPS estimate, below historical levels. /S. Plesser

S&P REITERATES BUY OPINION ON SHARES OF UNITED PARCEL SERVICE

UPS; $76.54

Chairman and CEO Mike Eskew is stepping down at the end of 2007, to be replaced by CFO Scott Davis. We would categorize the news as a mild surprise, but think there will be a smooth transition, and think Davis is a good choice. Under Eskew, UPS showed strong growth in revenues and earnings while overcoming missteps related to a shortfall in volumes during the 2005 holiday season and a salesforce reorganization in 2006. We liked Mr. Eskew's candor and communication style and expect this to continue under Mr. Davis's leadership. We maintain our 12-month target price at $89. /J. Corridore


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