Markets & Finance

S&P Stock Picks and Pans: Palm, Gemstar-TV Guide, Synopsys


Plus: Louisiana-Pacific, First Marblehead

From Standard & Poor's Equity ResearchS&P MAINTAINS HOLD OPINION ON PALM INC. SHARES (PALM; 6.59)

Shares are trading lower in premarket, after PALM says November-quarter revenues and gross margin will miss guidance. Preannouncement is also below our estimates. We think the revenue shortfall, due to a product launch delay, should also limit the smartphone maker's lineup during a seasonally strong February-quarter. Meanwhile, the 400 basis points miss in gross margin is equally problematic and, to us, creates more operational concerns, given new management. We are cutting our fiscal year 2008 (May) estimate to a loss of $0.23 from EPS of $0.05. We are cutting our target price by $1.50 to $6.00 on relative analysis. - T.Rosenbluth

S&P MAINTAINS HOLD OPINION ON SHARES OF GEMSTAR- TV GUIDE (GMST; 5.03)

GMST announces it has agreed to a $2.8 billion takeover by Macrovision (MVSN; 19.10), with shareholders receiving $6.35 in cash or 0.2548 of a share in the combined company for each GMST share. This represents a 6.2% premium over yesterday's close and a 25% premium to GMST's price before it announced a possible sale of the company in early July. Given GMST's new licensing agreements and its sizable cash position, we are not surprised by this deal and the price is in line with our sum-of-the parts valuation. The deal is expected to close by early second quarter 2008, subject to necessary approvals. - E.Kolb

S&P REITERATES HOLD RECOMMENDATION ON SHARES OF SYNOPSYS (SNPS; 25.06)

October-quarter operating EPS of $0.33 vs. $0.13 is $0.04 above our estimate. Revenue rose 11% to $315 million, $7 million above our view. We attribute better-than-expected results to higher upfront license revenue and a lower effective tax rate. Despite economic uncertainty, SNPS sees steady demand due to its recurring revenue model. Backlog grew to $2.5 billion. We think SNPS is gaining market share and are raising our fiscal year 2008 (October) revenue growth forecast to 8% from 6% and our EPS estimate to $1.27 from $1.17. We are lifting our target price by $4 to $28 to reflect our higher earnings and growth outlook. - J.Yin

S&P LOWERS OPINION ON SHARES OF LOUISIANA-PACIFIC (LPX; 15.99) TO STRONG SELL FROM HOLD

We are widening our 2008 loss estimate for LPX to $0.75 per share from $0.40 to reflect our view that the housing market will continue to weaken in 2008. We expect housing starts to decline 25% in 2007 and 26% in 2008 and lead to weak demand and prices for oriented strand board and siding. We are also concerned that new oriented strand board capacity will slow any recovery, and that LPX, with operations in Canada, is hurt by the weak U.S. dollar. We reduce our 12-month target price to $14 from $18 based on lower near-term cash flow inputs into our discounted cash flow model. - S.Benway-CFA

S&P DOWNGRADES OPINION ON SHARES OF FIRST MARBLEHEAD (FMD; 16.49) TO SELL FROM HOLD

FMD elects not to execute a student private loan securitization in the December quarter because of unsatisfactory economic terms. The company is exploring other alternatives to monetize private student loan volumes which it claims remains strong. We are concerned that if the credit markets remain skittish, future securitizations will also be in jeopardy. We believe non-securitization alternatives are economically less attractive. We are lowering our 12-month target price by $7, to $13, 3.7 times our fiscal year 2008 (June) estimate of $3.56, a significant discount to historical levels. - S. Plesser


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