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Analyst opinions on stocks making headlines Thursday
From Standard & Poor's Equity ResearchS&P MAINTAINS STRONG SELL OPINION ON SHARES OF XM SATELLITE RADIO
Pursuant to its proposed merger with Sirius (SIRI; $3.62), XM on its third quarter conference call again alluded to its intense Washington lobbying efforts, copious filings, and growing support from certain uninterested parties. But we note the pending deal has also elicited a growing number of staunchly vocal opponents. With regulators yet to tip their hands on potential outcome of pending review, we see nothing that changes the odds below 50-50 of necessary approvals. Meanwhile, fundamentals continue to be challenging, in our view, potentially raising the stakes of a possible regulatory denial. /T. Amobi, CPA, CFA
S&P DOWNGRADES SHARES OF WELLCARE HEALTH PLANS TO HOLD FROM STRONG BUY
Trading in WellCare reopened this morning with shares sharply down. They had stopped trading Wednesday on news of a search of its headquarters by federal and state agents. Also participating in the search was the Florida Attorney General's Medicaid Fraud Control Unit. WellCare continues to conduct its business and plans to report third quarter EPS on Nov. 5. Given the uncertainty of future government contracts, depending on the outcome of this investigation and the share price volatility we see ahead, we are cutting our forward P/E to a below-peer 9X from 20X and our target price by $70 to $55. /P. Seligman
S&P MAINTAINS STRONG BUY OPINION ON SHARES OF MATTEL
Mattel announces a fourth product recall, for 55,000 "Go Diego Go" toys in North America and Britain that contain an excessive amount of lead paint. This number is much smaller than previous recalls. Mattel blames a subcontractor that used "unauthorized paint." We maintain our view that the company will be able to restore consumer confidence in the safety of its products, but acknowledge that the risk of negatively impacting holiday sales heightens a bit. We maintain our 12-month target price of $29, based on historical analysis. /E. Kolb
S&P SEES COMPETITIVE PRESSURES WEIGHING ON CABLE OPERATORS
We think the lackluster Comcast (CMCSA; $21.20) report sets the tone for likely underwhelming third quarter for cable operators. While they should reap further benefits from digital phone deployment in years ahead, we think such gains increasingly could be muted by decelerating revenue-generating unit growth, particularly as DBS providers ramp HD channels, and telcos make forays with fiber-based offerings. With more aggressive discounting likely for bundled cable offerings, we would sell Comcast, Charter Communications (CHTR; $2.09) and Mediacom (MCCC; $5.60), and hold Cablevision (CVC; $29.50). /T. Amobi, CPA, CFA
S&P MAINTAINS HOLD RECOMMENDATION ON ADRS OF SONY CORP.
September-quarter earnings per ADR of 61 cents vs. one cent slightly beat our 58 cents estimate, while sales were roughly in line with our view. Consumer electronics sales and operating margins both exceeded our estimates on strength in digital and video cameras and new Bravia LCD TVs. The game division's loss was worse than we expected on PS3 inventory writedowns, which should position division for more favorable 2nd half performance. Sony reiterates its target for 11 million PS3s by the end of fiscal 2008 (Mar.). We raise our fiscal 2008 estimate by 5 cents to $2.80 on a slightly better forecast for the electronics division. /E. Kwon, CFA
S&P DOWNGRADES OPINION ON PALM INC SHARES TO SELL FROM HOLD
After last night's $9 cash dividend to shareholders, we have become negative on the shares. With the absence of interest income on a recapitalization, and inclusive of stock option expenses, we are lowering our fiscal 2008 (May) EPS estimate 19 cents to 5 cents and our fiscal 2009 estimate 29 cents to one cent. We believe the drain of Palm's cash flow will make competing with better-equipped smart-phone competitors even more challenging. We also do not expect near-term product improvements from new management. We are lowering our 12-month target price by $8.50 to $7.50, based on our price-to-sales analysis. /T. Rosenbluth