Markets & Finance

S&P Picks and Pans: Fannie, Freddie, GM, WaMu, DirecTV


Analyst opinions on stocks making headlines Wednesday

S&P MAINTAINS BUY RECOMMENDATION ON SHARES OF FEDERAL NATIONAL MORTGAGE

From Standard & Poor's Equity Research

FNM; $49.75

Fannie Mae receives a subpoena from NY State Attorney General Cuomo for information on all mortgages Fannie has purchased from Washington Mutual, seeking to determine whether possibly inflated home appraisals have tainted the value of mortgages Fannie purchased from WaMu. We do not believe the mortgages in question constitute a significant portion of Fannie's portfolio and expect Fannie to comment on Friday. We are keeping our $65 target price, based on a price-to-book multiple of 2.0X, a slight discount from historical levels, but we are raising our risk assessment to high from medium. /S. Plesser, E. Oja

S&P MAINTAINS BUY RECOMMENDATION ON SHARES OF FEDERAL HOME LOAN

FRE; $45.55

Freddie Mac receives a subpoena from New York state Attorney General Cuomo for information on all mortgages Freddie has purchased from Washington Mutual. At issue is whether possibly inflated home appraisals have overstated the value of mortgages purchased from WaMu by Freddie. We don't believe the mortgages in question constitute a significant portion of Freddie's portfolio. We are maintaining our target price of $69, which is based on a price-to-book multiple of 2.5X, a slight premium over historical trends. But we are raising our risk assessment to high from medium. /S. Plesser, E. Oja

S&P DOWNGRADES OPINION ON GENERAL MOTORS TO SELL FROM HOLD

GM; $34.57

Before special items including a $39 billion charge, GM posts third quarter loss from continuing operations of $2.80 vs. EPS of 88 cents, wider than our slight loss forecast. Wider losses at 49%-owned GMAC and weaker automotive margins hurt results and we are lowering our 2008 EPS estimate by 34 cents to $3.96. Our near-term outlook for GM has worsened on our reduced 2008 U.S. and Germany industry sales volume outlooks, and U.S. housing weakness. We do not see the primary benefits from the UAW VEBA agreement accruing prior to 2010. We are cutting our 12-month target price $7 to $32, on revised P/E analysis. /E. Levy, CFA

S&P MAINTAINS SELL OPINION ON SHARES OF WASHINGTON MUTUAL

WM; $22.66

At today's investor day, WaMu announces it expects industrywide mortgage originations to total $1.5 trillion in 2008, lower than consensus forecast of $2 trillion. The company says it is maintaining its dividend but will review its payout as the fourth quarter progresses. Based on comments from WaMu's chief risk officer, we are increasing our projection for 2008 loss provision to $5.2 billion from $4 billion. As a result, we are lowering our 2008 EPS estimate by 94 cents, to $1.65, and reducing our 12-month target price by $1, to $19, 11.5X that estimate. /S. Plesser

S&P MAINTAINS HOLD OPINION ON SHARES OF DIRECTV GROUP

DTV; $27.01

Third quarter EPS of 27 cents vs. 27 cents, lagged our estimate by 4 cents, partly on higher depreciation & amortization. But U.S. net subscriber adds of 240,000 beat our forecast, accompanying notably healthy trends in pricing, churn, and subscriber acquisition costs. Also, Latin America unit showed perhaps most remarkable turnaround strides yet. We expect update on HD rollout, on target for 100 national HD channels in 2007, launch plans for DirecTV 11 satellite in 2008, and regulatory review of pending control transfer to Liberty Media (LINTA), from News Corp. (NWS). /T. Amobi, CPA, CFA

S&P MAINTAINS BUY RECOMMENDATION ON SHARES OF GARMIN LTD.

GRMN; $92.73

After TomTom trumps Garmin's bid for Tele Atlas, we see two possible outcomes for the company. First, it makes a 10%-15% higher final bid and wins, valuing the deal at about $4.6 billion. We note that Garmin's market cap has fallen about $5.8 billion since its initial offer, which we see as a significant market overreaction to the potential deal. Second, Garmin does not acquire Tele Atlas, negotiates a long-term contract at favorable pricing with map supplier Navteq (NVT), and pockets a nice gain from its approximate 5% stake in Tele Atlas. Either way, we see Garmin shares as undervalued. /J. Peters, CFA

S&P DOWNGRADES OPINION ON SHARES OF BOSTON BEER COMPANY TO HOLD FROM BUY

SAM; $38.55

Excluding provision for contingent tax liability, third quarter EPS of 39 cents vs. 41 cents misses our estimate by 8 cents on higher materials and packaging costs and costs stemming from temporary brewery maintenance shutdown. Core shipment volume rose 11.2% with a 4.8% increase in revenue per barrel, showing impressive demand. We are concerned about raw material cost headwinds, and with a more capital intensive plan for 2008, we are cautious on the company's ability to flow top-line strength to EPS. We maintain our EPS estimates, but lower our target price by $8 to $44, a discount to historical P/Es. /E. Kwon, CFA


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