Markets & Finance

S&P Picks and Pans: Dell, Countrywide, Motorola, US Airways, Tiffany


Analysts' opinions on stocks in the news

From Standard & Poor's Equity ResearchS&P MAINTAINS HOLD OPINION ON SHARES OF DELL (DELL; 28.14)

DELL posts October-quarter EPS of $0.34 vs. $0.27, a penny below our estimate. Revenues rose 9%, led by notebook PCs. Gross margin widened 190 basis points, but barely outweighed a 160 basis point widening in SG&A. We project similar inconsistent progress on margins to continue as the company adds retail outlets and foreign operations, but expect acquisitions, lower taxes overseas, and share buybacks to aid results. We are raising our fiscal year 2008 (January) EPS estimate by a penny to $1.37, and maintaining our $1.60 estimate for fiscal year 2009. Our p-e-based 12-month target price remains $31. - T.Smith-CFA

S&P MAINTAINS HOLD OPINION ON SHARES OF COUNTRYWIDE FINANCIAL (CFC; 9.30)

According to an unconfirmed article in the Wall Street Journal, The White House and major financial institutions are working on a plan to freeze interest rates on troubled subprime home loans. The plan, if put into action, would likely mitigate default rates, as there are over two million mortgages due to reset over the next two years. We believe such a plan, along with a possible rate cut, would benefit CFC, as the company has a significant amount of adjustable mortgages on its books. We are maintaining our 12-month target price at $11, 0.4 times current book value. - S.Plesser

S&P MAINTAINS HOLD OPINION ON MOTOROLA SHARES (MOT; 15.65)

We expect MOT to open higher on news that CEO Ed Zander will step down at year end and be replaced by COO Greg Brown. Investor dissatisfaction with Zander, who will remain as chairman, has risen as MOT has lost marketshare in handsets. Despite signs of improved cash generation, we believe a turnaround is still incomplete. While we contend that fresh leadership could prove positive for MOT, we question whether the timing of the change signifies further weakness for its core handset business in the fourth quarter. Despite upside to our 12-month target price of $20, our opinion is hold. - T.Rosenbluth

S&P RAISES OPINION ON SHARES OF US AIRWAYS GROUP TO BUY FROM HOLD (LCC; 20.73)

While we remain worried about the impact of high oil prices on LCC and the overall airline industry, we think the company's shares have overcorrected on this issue. We think unit revenues are likely to remain strong in 2008, given what we see as rational industry capacity levels. Also, we expect non-fuel unit costs to remain well controlled and think jet fuel costs could have easier comparisons in the second quarter and fourth quarter of 2008. We are cutting our 2008 EPS estimate to $4.25 from $5.00 on oil, but keeping our 12-month target price of $32, 7.5 times that estimate, well below peers. - J.Corridore

S&P REITERATES STRONG BUY RECOMMENDATION ON SHARES OF TIFFANY (TIF; 48.75)

October-quarter EPS of $0.27, vs. $0.18 (adjusted for one-time events), beats our $0.23 estimate as consolidated same-store sales rose 11% in constant currency, and 8% in the U.S. Price point strength was across the board, with $4,000-$50,000 the fastest growing. NY flagship store saw 25% sales gain on more transactions and strong international traffic. With relaunched website, a sunglass launch and a new smaller store format (2000 sq ft) increasing its addressable market, we are very positive on TIF this holiday and beyond. We boost our fiscal year 2008 (January) operating EPS estimate $0.05 to $2.30. - M.Driscoll-CFA


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