Markets & Finance

S&P Stock Picks and Pans: Toll Brothers, Wal-Mart, Genentech


Plus: opinions on Coca-Cola, GM, and November retail sales

From Standard & Poor's Equity ResearchS&P MAINTAINS BUY OPINION ON TOLL BROTHERS SHARES (TOL; 20.72)

TOL posts October-quarter loss of $0.52 vs. EPS of $1.07, after one-time pretax writedowns of $315 million, worse than our $0.27 EPS estimate. Revenue declined 35% to $1.17 billion, missing our $1.2 billion estimate as order cancellations and lower net bookings negatively effected revenues. We will update our financial forecast for fiscal year 2008 (October) after today's 2 pm conference call. With TOL targeting homes delivered between 3,900 and 5,100 in fiscal year 2008, and at a lower average selling price, we will reevaluate our current revenue estimate of $4.6 billion in fiscal year 2008, vs. $4.65 billion in fiscal year 2007, for likely reductions. - K.Leon, CPA

S&P REITERATES HOLD RECOMMENDATION ON SHARES OF WAL-MART STORES (WMT; 48.13)

WMT reports 1.9% November comparable-store sales growth, above our 1.2% growth estimate, mostly on higher gasoline prices. We believe colder temperatures are leading to an improvement in apparel sales, while food and pharmacy sales remain strong. We see the home category continuing to be one of the weakest sales categories. For December, we expect comp-store sales to rise 1.9%, near the midpoint of the company's 1%-3% guidance. As a result, we are keeping our January-quarter EPS estimate of $1.03 and our 12-month target price of $50, based on our discounted cash flow and forward p-e analyses. - J.Agnese

S&P REITERATES BUY OPINION ON SHARES OF GENENTECH (DNA; 66.86)

Advisory panel votes 5-4 against endorsing Avastin for breast cancer, based on lack of survival benefit and higher side effect risk. FDA will formally decide in February 2008. While still possible, we see FDA approval as less likely, though we think off-label use may continue on compendia listing from progression-free survival data. We maintain a positive long-term view, but are cautious about relying on Avastin to drive growth. We reduce our 2008 EPS estimate $0.08 to $3.20, the low end of DNA target growth range, and cut target price by $9 to $80, 25 times that estimate, down from 27 times. - S.Silver

S&P REITERATES BUY RECOMMENDATION ON SHARES OF COCA-COLA (KO; 62.81)

This morning, KO's board announces that President and Chief Operating Officer Muhtar Kent will succeed Chairman and Chief Executive Officer Neville Isdell as CEO on July 1, 2008. This succession has been expected for some time, and we view very favorably Mr. Kent's prior experience with bottling operations. We think improvements in bottling operations are a key driver to better operating performance at KO. We see a smooth transition to new leadership, with Mr. Isdell remaining chairman until April 2009. We reiterate our buy opinion. - E.Kwon-CFA

S&P KEEPS SELL OPINION ON SHARES OF GENERAL MOTORS (GM; 27.77)

According to the WSJ, auto loans delinquencies are rising sharply. In our view, this is partly a mortgage crisis fallout, as auto loans do not have payment surges from interest rate resets as found in the housing industry. While we do not see rising delinquency rates at critical levels, they could hinder auto sales in 2008 by making it harder for some buyers to get vehicle loans amid more restrictive lending criteria and higher borrowing rates. This reduces visibility for our 2008 sales forecast of 15.9 million new light vehicles sales. - E.Levy-CFA

A SNAPSHOT OF NOVEMBER RETAIL SALES

Our sales-weighted index of 14 apparel retailers posted a +1.5% November comp reading, compared with our 1% projection and year-ago +1.1%. An early Thanksgiving benefited retailers as shoppers flocked to stores on Black Friday, and weekend mall traffic rose 4.8%. But most retailers experienced a slowdown in the final November week, and we would not extrapolate strength forward. We continue to look for 3%-3.5% gain in total holiday sales. Our broader measure of 26 retailers (including mass, warehouse and department stores) showed a +4.5% reading vs. +2.0%, above our 2.5% estimate. - M.Driscoll, CFA


American Apparel's Future
LIMITED-TIME OFFER SUBSCRIBE NOW

(enter your email)
(enter up to 5 email addresses, separated by commas)

Max 250 characters

 
blog comments powered by Disqus