Markets & Finance

S&P Picks and Pans: Freddie, Wells Fargo, Corning, Volvo, Lennar


Analyst opinions on stocks making headlines Wednesday

S&P MAINTAINS SELL OPINION ON SHARES OF FREDDIE MAC

From Standard & Poor's Equity Research

FRE; $25.73

Freddie announces it is halving its dividend and it plans to sell $6 billion of preferred stock to bolster capital levels. The issuance involves selling convertible non-cumulative perpetual preferred stock and a substantially smaller offering of convertible non-cumulative perpetual preferred stock. Despite the potential new share issuance, we don't expect Freddie to be a major factor in the mortgage markets, as we expect it to continue to incur losses and to be wary of capital levels. We are lowering our target price by $2 to $22, 0.8X current book value, a discount to historical levels. /S. Plesser

S&P REITERATES HOLD RECOMMENDATION ON SHARES OF WELLS FARGO

WFC; $31.17

Wells Fargo will take a $1.4 billion pretax charge in the fourth quarter, largely relating to higher losses it expects in its home equity loan portfolio. It is no longer acquiring these loans via correspondent relationships and certain other indirect channels, and has tightened its lending standards. However, Wells Fargo still has $71.5 billion in its home equity loan portfolio and a large exposure to the California housing market. We are lowering our 2007 and 2008 EPS estimates to $2.43 and $2.90 from $2.72 and $2.98, respectively, and reducing our 12-month target price by $1 to $38, 13X our 2008 estimate. /F. Braden, CFA

S&P MAINTAINS STRONG BUY OPINION ON CORNING SHARES

GLW; $23.73

Following commentary this week at an investor conference about Corning's diesel business, we believe the company will have a strong 2008, Also, major customer Samsung said it expects very strong growth in LCDs as consumers buy more TVs to watch the 2008 Olympics. Samsung said it expected the market for TV panels to rise 32% in unit terms, driven by panel sizes of 40 inches and higher. We believe that Corning's investment in facilities, while competitors reduced spending, will help to support its revenue and operating income growth in 2008. We are keeping our $31 12-month target price. /T. Rosenbluth

S&P UPGRADES OPINION ON VOLVO AMERICAN DEPOSITARY RECEIPTS TO HOLD FROM SELL, ON VALUATION

VOLV; $16.73

Following the past month's decline in Volvo's share price we are raising our recommendation, while keeping our 12-month target at $17, 14X our 2008 EPS estimate of $1.21. We note that the U.S. heavy-duty truck market is experiencing significant weakness this year amid changes in emissions regulations, but we look for a recovery starting in 2008. Also, because we project growing Asian commercial truck demand, we think Volvo's P/E can expand above historical levels. Trading below our target price and yielding about 3.8%, we would hold Volvo for total return potential. /E. Levy, CFA

S&P UPGRADES OPINION ON LENNAR SHARES TO HOLD FROM SELL

LEN; $14.92

Down 40% since Oct. 1, Lennar shares are trading below our 12-month target price of $16, cut today from $18 based on 0.6X ratio of price to book value, near large homebuilders group. Our target price assumes another $800 million in asset impairment charges in the November quarter following an $847 million charge in the August quarter. Our estimate is supported by peers' large writeoffs for homesites in California and Florida, where Lennar has above average exposure. Despite expected housing weakness and further declines in new orders, we see Lennar surviving the downturn as a large builder. /K. Leon, CPA


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