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Analyst opinions on stocks making headlines Monday
S&P MAINTAINS HOLD OPINION ON SHARES OF CITIGROUP
From Standard & Poor's Equity Research
Following Citi's conference call, we are lowering our 2007 EPS estimate to $2.47 from $3.80 reflecting the company's announcement of larger writedowns in the fourth quarter and a downward revision of 3 cents to third quarter results. We are also decreasing our 2008 EPS estimate to $4.40 from $4.50 and lowering our 12-month target price to $43 from $45, 9.8X our 2008 EPS estimate and a discount to Citi's historical average. Despite the large writedowns Citi expects to take in the fourth quarter, its large exposure to subprime-related assets of about $55 billion leaves open the possibility of further writedowns if conditions worsen. /F. Braden, FA
S&P MAINTAINS HOLD OPINION ON SHARES OF MERRILL LYNCH
According to an unconfirmed report on CNBC television, Merrill has offered the position of CEO to Laurence Fink of BlackRock Inc. (BLK). Fink would have two weeks to decide whether to accept the offer. Not only do we believe that Fink is a capable candidate, but we also think that a quick resolution to Merrill's vacant CEO position is imperative for the well being of the company, given its subprime exposure. Specifically, Merrill took $7.9 billion in writedowns in third quarter and may need to take more in future quarters. We are maintaining our $68 12-month target price. /S. Plesser
S&P REITERATES BUY OPINION ON SHARES OF IAC/INTERACTIVECORP
We participated in the conference call regarding split-up IACI announced this morning, and are encouraged that it will create value for shareholders. We think IACI is committed to being a better-focused operating company, and the pending spin-offs will generate notable added capital for internal investment, acquisitions, and repurchases. However, we do not expect IACI to pursue significant buyback activity until the transactions are completed. IACI also announces 5-year renewal of its partnership with Google (GOOG), and ascribes a related $3.5 billion value. /S. Kessler
S&P MAINTAINS HOLD OPINION ON TIME WARNER SHARES
Unconfirmed CNBC report says Time Warner may announce as early as today that CEO Parsons will relinquish the post to COO Bewkes by the end of 2007. With recent talks of Parsons' likely early departure as May 2008 contract-end approaches, we see an exit as hardly surprising. We see shares up as Bewkes may be more amenable to further-reaching strategic moves affecting AOL, Time Warner Cable (TWC) , plus film/TV and print businesses. With the company's third quarter earnings release set for Nov. 7, we expect investors to focus on turnaround progress at AOL, where Bewkes has recently taken a more hands-on approach. /T. Amobi, CPA, CFA
S&P DOWNGRADES SHARES OF FANNIE MAE TO BUY FROM STRONG BUY, ON VALUATION
Our enthusiasm for these shares is tempered by the current housing malaise. Although we believe Fannie should benefit from a pickup in marketshare in its credit guarantee business given a decline in private securitizations, we are concerned that rising chargeoffs levels will detract from results. Although we consider Fannie's high loan standards, including a maximum 80% loan-to-value ratio, a plus, the magnitude of possible home price declines in certain areas of the country makes us cautious. We are lowering our 12-month target price by $10 to $65, roughly 2 times book value. /S. Plesser
S&P REITERATES HOLD RECOMMENDATION ON DELL SHARES
Dell agrees to acquire EqualLogic, a provider of iSCSI storage area network solutions, for $1.4 billion in cash. The transaction is subject to customary closing conditions. If consummated as Dell plans in January or February, we believe the acquisition would add virtualization expertise to the computer maker's storage product line-up and aid long-term earnings growth, while cutting EPS by about 2 cents for fiscal 2009 (ending Jan.). We are maintaining our EPS estimates for $1.36 for fiscal 2008, and $1.60 for fiscal 2009, and keeping our P/E-based 12-month target price of $31. /T. Smith, CFA