Markets & Finance

S&P Picks and Pans: Sirius, Merrill. P&G, PetroChina, Qwest


Analyst opinions on stocks making headlines Tuesday

S&P MAINTAINS HOLD OPINION ON SHARES OF SIRIUS SATELLITE RADIO

From Standard & Poor's Equity Research

SIRI; $3.47

Sirius, in its third quarter conference call, affirmed the 2007 target for its merger with XM Satellite Radio (XMSR). Still, we think CEO Mel Karmazin's first-time comment that he would not "guarantee" the outcome alludes to lingering regulatory risk. Even so, we have little doubt that Sirius' continued marketshare strides, mostly on OEM gains, combined with a self-funding business model aided by advance prepayments, can sustain a projected path of positive free cash flow in 2008, but potentially subject to capital spending for new satellites. Our 12-month target price stays $3.50, on relative enterprise value/sales compared with XM. /T. Amobi, CPA, CFA

S&P REITERATES BUY OPINION ON SHARES OF MERRILL LYNCH

MER; $66.34

Chairman and CEO E. Stanley O'Neal has retired. Board member Alberto Cribiore will serve as interim non-executive chairman, and will chair the search committee to find a new CEO from within or outside the company. Although we think the move is a near-term catalyst for the stock following a wide third quarter loss, we caution that it does not alleviate the pressure on results we expect from continued exposure to difficult mortgage and CDO markets. We are keeping our buy opinion based on valuation, and our 12-month target price remains $79, 1.8X projected 12-month book value. /M. Albrecht

S&P REITERATES STRONG BUY OPINION ON SHARES OF PROCTER & GAMBLE

PG; $68.75

We think the shares are weak on concerns about commodity price pressures. However, we think price hikes announced this morning will stick, and along with benefits from restructuring and lack of Gillette dilution, we think P&G will post a higher pretax margin for the year. The price increases will take effect within the next four months and range from 3% to 12%. We are increasing our full fiscal 2008 EPS estimate by one cent to $3.48 reflecting first quarter EPS upside. Rolling our valuation forward to our $3.69 calendar year 2008 EPS estimate, we raise our 12-month target price by $4 to $81. /L. Braverman, CFA

S&P DOWNGRADES ADRS OF PETROCHINA TO BUY FROM STRONG BUY, ON VALUATION

PTR; $251.00

Following recent outperformance of PetroChina shares, rising 38% over the past month, we believe there is limited near-term upside from current levels. However, we are increasing our 2008 and 2009 earnings per ADR estimates to $15.08 and $15.50, respectively, on our forecast of 7% and 9% gains in PetroChina's assumed average crude selling price for 2008 and 2009, and a lower effective tax rate ahead. We are increasing 12-month target price to $292 from $226 based on a sum-of-parts valuation of PetroChina's assets and the potential market value of its oil & gas reserves. /L. Tan

S&P MAINTAINS SELL OPINION ON SHARES OF QWEST COMMUNICATIONS

Q; $7.28

Following Qwest's call reviewing third quarter results, which matched our EPS estimate despite weaker revenues, we remain bearish on the shares. We believe revenues will remain sluggish and see cost savings efforts having only a modest impact on EBITDA in 2008. We are lowering our 2008 EPS estimate by 5 cents to 55 cents. We are unsurprised by likely higher capital spending in 2008 and no decision on a dividend or added share repurchases, given a new CEO, but believe the shares are down 11% today on such concerns. We are lowering our 12-month target price by 50 cents to $7 on enterprise value/EBITDA adjustments. /T. Rosenbluth


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