Markets & Finance

S&P Picks and Pans: Ford, Exxon, Altria, AstraZeneca, NICOR


Analyst opinions on stocks making headlines Thursday

S&P KEEPS HOLD RECOMMENDATION ON SHARES OF FORD MOTOR

From Standard & Poor's Equity Research

F; $8.76

Ford's year-to-year October sales volume fell 9.5%. Cars slumped 26%, while light trucks edged up 0.9%. Sales of the important F-series truck were down 7.5%. The bright spots, in our view, were higher Lincoln, Mercury, and Land Rover sales, and increased crossover utility vehicle volume. Also, much of the overall decline reflected a 38% reduction in sales to low-margin daily rental fleets. We expect high gas prices and weak residential housing markets to limit industry sales. We forecast 2008 industrywide light vehicle volume at 16.0 million and expect Ford to lose market share. /E. Levy, CFA

S&P REITERATES HOLD RECOMMENDATION ON SHARES OF EXXON MOBIL

XOM; $90.73

Exxon posts third quarter operating EPS of $1.70 vs. $1.77, reflecting narrowed refining and chemical margins. EPS beats our estimate by 6 cents. Oil and gas production declined 2.1%, below our expectations; we expect full 2007 volumes to decline about 2% before increasing about 1% in 2008. We are raising our 2007 operating EPS estimate by 17 cents to $6.82, and 2008's by 29 cents to $7.24. A blend of our discounted cash-flow (DCF) and relative valuations lead us to maintain our 12-month target at $98, representing an expected enterprise value of 8.9X our 2008 EBITDA estimate; a premium to peers. /T. Vital

S&P MAINTAINS STRONG BUY RECOMMENDATION ON SHARES OF ALTRIA GROUP

MO; $72.58

Altria agrees to acquire John Middleton Inc., a leading manufacturer of machine-made large cigars for $2.9 billion in cash. Middleton's Black & Mild brand is second biggest in the machine-made-large market with a 23% share. Anticipating consummation by year-end, subject to approvals, Altria expects Middleton to be modestly accretive in 2008. We think the acquisition is good step in strategy to grow beyond cigarettes, and see growth prospects and profitability of the cigar market very attractive versus a contracting cigarette market. Altria projects 2007 operating margins of over 50% at Middleton. /E. Kwon, CFA

S&P REITERATES BUY OPINION ON AMERICAN DEPOSITARY SHARES OF ASTRAZENECA

AZN; $48.63

Third-quarter operating earnings per ADS were $1.04 vs. $1.03 on a sales gain of 10%, 4% from forex. Both top- and bottom-line results were a bit ahead of our forecasts. Key drivers were Seroquel (sales up 22% to $1.1B), and Symbicort (up 25% to $371M). While also up 25%, Crestor sales of $691M were well below our estimate of $800M. Cobalt Pharmaceuticals filed an ANDA with the FDA for approval of generic rosuvastatin (Crestor). But we think Cobalt will not launch until patent litigation is resolved. Our target price remains $58 on blended DCF and peer group P/Es. Dividend yield is 3.5%. /A. Nordstrom

S&P MAINTAINS STRONG BUY OPINION ON SHARES OF NICOR INC.

GAS; $41.99

Third-quarter EPS of 32 cents vs. 39 cents beats our estimate by 4 cents. Revenues were about even with our estimate. While per-revenue cost of gas was higher than we projected, all non-fuel per-revenue expenses were below. Also, net interest expense and the effective tax rate were less than we projected. We are lowering our 2007 and 2008 EPS estimates by 4 cents to $2.82 and by 10 cents to $2.95, respectively, on reduced shipping revenue estimates. We are reducing our target price by $3 to $50. We find NICOR's dividend yield attractive at 4.4%. Well below our target price, we find the shares compelling. /C. Muir

S&P REITERATES STRONG BUY RECOMMENDATION ON SHARES OF CVS CAREMARK

CVS; $41.03

CVS reports third quarter EPS of 45 cents vs. 33 cents, 3 cents ahead of our estimate. Margins widened more than we expected on synergies from acquisition of PBM and retail stores, overall net benefit from increasing generic drug sales, and continued growth of share in all core non-pharmacy retail categories. We are upping our 2007 EPS estimate by 5 cents to $1.91 on improving product mix and progress integrating acquisitions despite more difficult non-pharmacy comparisons and a weak start to flu season, and we raise our target price $3 to $48 on updated comparative and forward 12-month P/E analyses. /J. Agnese


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