Markets & Finance

S&P Picks and Pans: AT&T, GE, WaMu, Texas Instruments


Analyst opinions on stocks making headlines Tuesday

S&P MAINTAINS STRONG BUY OPINION ON SHARES OF AT&T

From Standard & Poor's Equity Research

T; $40.01

Update: After AT&T's analyst day, we are encouraged that free cash flow growth, to support AT&T's 13% dividend hike and plans to repurchase 6% of its stock, is to be driven by revenue growth as well as cost savings. Based on commentary at today's

meeting, we are raising our 2008 revenue growth forecast to 4% from 2.5%. Also, given a 25.2% operating margin projection, we are increasing our 2008 EPS estimate by 9 cents to $3.22 and we see 2009 EPS of $3.50. We are raising our 12-month target price by $2 to $46, based on relative analysis. AT&T's dividend yield, currently 3.5%, adds support./T. Rosenbluth

S&P MAINTAINS BUY OPINION ON SHARES OF GENERAL ELECTRIC

GE; $36.90

GE reaffirms 2007 EPS guidance of $2.19-$2.21,

and we keep our estimate of $2.19. For 2008, GE sees at least 10% EPS increase, with organic revenue rising at two to three times GDP growth, wider margins, a higher tax rate, and industrial growth greater than financial services segment growth. We continue to see the infrastructure unit as GE's powerhouse. We are lowering our 2008 EPS estimate by 6 cents to

$2.43, but keep our 12-month $45 target price. With our view of GE's strong business execution, low exposure to financial market problems, good markets, and generous dividend, our opinion is buy. /R.Tortoriello

S&P DOWNGRADES SHARES OF WASHINGTON MUTUAL TO STRONG SELL FROM SELL

WM; $19.88

WaMu announces that it will issue $2.5 billion of convertible preferred stock and cut its quarterly dividend by 73% to shore up capital. WaMu will also write down its home loan business by $1.6 billion. Separately, based on declining home prices and a rise in credit card delinquencies, we are lifting our fourth-quarter and 2008 loan loss provision estimates by 23% and 35%, respectively, to $1.6 billion and $6.9 billion. We are reducing our 2007 and 2008 EPS estimates by $1.65 and $1.05, respectively to 70 cents and 60 cents. We are also cutting our target price by $1 to $14, 0.52X book value of $27. /S. Plesser

S&P REITERATES HOLD OPINION ON SHARES OF TEXAS INSTRUMENTS

TXN; $33.58

TI provides a fourth-quarter update, now forecasting EPS of 50-54 cents, raised from previous guidance of 48-54 cents. The company also projects revenues of $3.50-$3.66 billion, up from its previous forecast of $3.40-$3.68 billion. Both are now modestly above levels we had projected. TI says analog sales remain healthy, while wireless sales are below seasonal trends, as it has previously said. We are raising our fourth-quarter EPS estimate by 2 cents to 52 cents on the new guidance. /C. Montevirgen

S&P DOWNGRADES AMERICAN DEPOSITARY SHARES OF ALLIANZ TO HOLD FROM BUY

AZ; $21.38

We expect that Allianz's combined operating ratio, excluding catastrophes, will continue to deteriorate, and we project flat profits for 2008. We do not expect the company to outperform in its sector, based on uncertainties in its U.S. life business and investment banking exposure. We are increasing our 2007 earnings per ADS estimate by a penny to $2.20, but lowering 2008's to $2.31 from $2.41 and 2009's to $2.46 from $2.56, using an exchange rate of $1.40 per euro. We reduce our 12-month target price by $1 to $21, based on our discounted cash-flow (DCF) model that assumes a 10.7% cost of equity. /T. Silverman

S&P UPGRADES AMERICAN DEPOSITARY SHARES OF ING GROEP TO BUY FROM HOLD

ING; $40.35

The upgrade reflects our view that ING is well positioned for growth, with exposure to life insurance, retail banking, emerging markets, internet banking, and retirement services in the U.S. While risks exist related to subprime and bond markets, we believe these are now overdone in the case of ING, and have left its ADSs at very low valuation multiples, which, based on its growth positioning, should be attractive when the sector recovers. We are reducing our DCF-based 12-month target price by $2 to $46,

a peer-equivalent 8.3X our 2008 earnings per ADS estimate. /T. Silverman


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