Markets & Finance

S&P Picks and Pans: Citi, Merrill, Goldman, Wachovia


Analyst opinions on stocks making headlines Friday

S&P DOWNGRADES RECOMMENDATION ON SHARES OF CITIGROUP TO HOLD FROM STRONG BUY

From Standard & Poor's Equity Research

C; $38.51

As a result of acquisitions and the migration of leveraged loans and commercial paper to its balance sheet, Citi's capital ratios have fallen below its targets. While we believe it is unlikely Citi will need to cut its dividend, the suspension of share buybacks and possible asset sales may be necessary to boost capital levels, which may preclude Citi from taking advantage of market opportunities in the near term. We are cutting our 2007 and 2008 EPS estimates to $3.80 and $4.50, from $3.82 and $4.89. We are lowering our target price to $45 from $59, a discount to historical valuations. /F. Braden, CFA

S&P DOWNGRADES OPINION ON SHARES OF MERRILL LYNCH TO HOLD FROM BUY

MER; $62.19

An unconfirmed report in The Wall Street Journal suggests that Merrill may have been offloading risky debt instruments to hedge funds, with agreements to repurchase them at a later date, in order to delay potential writedowns. The story also notes that the SEC is investigating the manner in which Merrill marks its assets, in a bid to determine if the company has been straightforward with investors. We believe that current market risks outweigh any potential upside, and we are reducing our 12-month target price $11 to $68, 1.6X projected book value, a discount to peers. /M. Albrecht

S&P DOWNGRADES RECOMMENDATION ON SHARES OF GOLDMAN SACHS TO BUY FROM STRONG BUY

GS; $230.01

We are reducing our recommendation due to valuation. Recent developments with peers, including larger-than-expected write-downs, a continuing struggle for liquidity, and credit concerns, suggest that more troubles lie ahead for the investment banks. Although we continue to believe Goldman has shown the strongest risk management controls and is best positioned to weather the current storm, we see less upside potential after a recent upward move in the stock. We keep our 12-month target price at $250, 2.5X our projected 12-month book value, a premium multiple to peers. /M. Albrecht

S&P DOWNGRADES OPINION ON SHARES OF WACHOVIA TO BUY FROM STRONG BUY

WB; $43.54

Due to our expectation of further writedowns in Wachovia's corporate and investment bank, and a continuing decline in the housing market, we are cutting our 2007 and 2008 EPS estimate to $4.41 and $4.77, from $4.93 and $5.39. We are also lowering our target price to $52 from $62, 11X our 2008 estimate and a discount to Wachovia's historical average. While we believe Wachovia's option ARM portfolio is more conservative than peers', we expect its large exposure and the longevity of the housing downturn in California will keep pressuring earnings as provisions for loan losses continue to grow. /F. Braden, CFA


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