Markets & Finance

S&P Picks and Pans: BofA, Continental Air, Pfizer, Sony, Hershey


Analyst opinions on stocks making headlines Thursday

S&P REITERATES STRONG BUY RECOMMENDATION ON SHARES OF BANK OF AMERICA

From Standard & Poor's Equity Research

BAC; $48.17

Following BofA's earnings call, we are cutting our 2007 and 2008 EPS estimates to $4.40 and $5.02 from $4.68 and $5.17. We are also lowering our 12-month target price by $6 to $57, 11.4X our 2008 estimate and in line with peers. Much of the underperformance for the quarter stemmed from trading losses, and we would not be surprised to see some restructuring in BofA's capital markets business in response. However, we believe BofA's core operations performed relatively well during the quarter, and we see them as well positioned for growth going forward. /F. Braden, CFA

S&P UPGRADES SHARES OF CONTINENTAL AIRLINES TO STRONG BUY FROM HOLD

CAL; $35.15

While we remain worried about the impact of high oil prices on the U.S. airline industry, we think Continental is showing that high load factors and strong international growth can allow profitable growth at some airlines, even with oil at record levels. Continental's third quarter operating EPS of $2.25 vs. $1.36 beats our $1.69 estimate. The company increased unit revenue and yields, and sees strong travel demand so far in the fourth quarter. We raise our 2008 EPS estimate to $5.00 from $4.50 and 12-month target price to $50 from $35, 10X our 2008 estimate, a bit below peers. We expect the shares to remain volatile. /J. Corridore

S&P MAINTAINS HOLD OPINION ON PFIZER SHARES

PFE; $24.76

Third-quarter adjusted EPS rose 7% to 58 cents, 4 cents above our estimate. While down 2%, revenues of $12 billion also exceeded our forecast, buoyed by favorable forex and robust sales of new drugs. Bottom line results continue to benefit from share buybacks ($7.5 billion spent in 9 months), and cost restructurings. Pfizer is on target to achieve net cost savings of $1.5B-$2.0B by 2008. Pfizer is taking a $2.3 billion charge to terminate Exubera inhaled insulin. Pipeline still robust with 47 drugs in Phase II. We are keeping our target price of $28, a peer-discount 12X $2.33 EPS we see in 2008. Dividend yield is 4.7%. /H. Saftlas

S&P MAINTAINS HOLD RECOMMENDATION ON ADRS OF SONY CORP.

SNE; $46.45

An unconfirmed report in the Wall Street Journal says Sony is cutting the price of its PlayStation 3 by $100, to $399, which will put it just $50 above Xbox 360 but still substantially ahead of Wii's $250. With only 40 gigabytes of storage compared to the previous entry level of 60, the console will be unable to play games compatible with the PlayStation 2. Even so, we view this move as positive, since we think it will stimulate sales in the critical holiday season, especially against the 360, but believe a stronger software line-up next year will be key to accelerating sales. /E. Kwon, CFA

S&P REITERATES SELL OPINION ON SHARES OF HERSHEY CO.

HSY; $43.09

Before special items, third quarter EPS of 68 cents vs. 78 cents is 3 cents below our estimate, on a weaker-than-expected 1% revenue decline. We are cutting our 2007 EPS estimate to $2.10 from $2.25, and 2008's to $2.35 from $2.50. Overall, we still think Hershey's supply chain improvement plan bolsters longer-term profit growth prospects. But with a reduced intermediate-term EPS outlook for Hershey, we are lowering our 12-month target price to $40 from $46. Target p-e of 17X estimated 2008 EPS is below the average we project for packaged food stock peers. Hershey's indicated dividend yield is about 2.8%. /T. Graves, CFA


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