Markets & Finance

S&P Picks and Pans: Citi, Black & Decker, Wynn, UBS


Plus analyst opinions on more stocks making headlines in Friday's market

S&P MAINTAINS HOLD RECOMMENDATION ON SHARES OF CITIGROUP

From Standard & Poor's Equity Research

C; $31.01

Citi announces that it will provide a support facility to its Structured Investment Vehicles and consolidate the $49 billion of SIVs' assets and liabilities onto its balance sheet. The action allows the SIVs more time to pursue asset reductions and avoids a fire sale. However, the move will lower Citi's Tier 1 capital ratio, which stood at 7.4% on September 30, by about 16 basis points. We believe this move increases the likelihood of a cut in its dividend as Citi strives to improve its targeted capital ratio to 7.5% by the end of the second quarter. /F. Braden, CFA

S&P MAINTAINS HOLD OPINION ON BLACK & DECKER SHARES

BDK; $80.13

The shares are lower in pre-market trading after Black & Decker lowers EPS guidance, reflecting soft demand for consumer power tools in the U.S. and a $25 million charge for product returns. We are lowering our 2007 EPS estimate to $6.00 from $6.60 and 2008's to $6.35 from $7.15, based on our expectation that demand for many of Black & Decker's products will remain weak because of the housing downturn. With only one third of its sales outside the U.S., we believe Black & Decker may grow slower than peers. Applying a 13.5X P/E to our 2008 EPS estimate, near peers, we reduce our 12-month target price to $86 from $93. /K. Leon, CPA

S&P REITERATES SELL OPINION ON SHARES OF WYNN RESORTS

WYNN; $119.59

We think Wynn is an excellent operator with strong growth prospects. But with Macau competition coming online, specifically MGM's project this month, we think earnings upside will be more limited in 2008. We also think high-end gaming will begin to see more pressure from consumer weakness in the US in 2008. With Wynn trading at about a 20X ratio of enterprise value to EBITDA, compared to a broad peer group average at about 14X, and a forward P/E of about 35X, we think the shares are richly valued. We are cutting our target price by $32 to $110 to reflect lower peer multiples. /E. Kwon, CFA

S&P REITERATES HOLD RECOMMENDATION ON SHARES OF UBS AG

UBS; $47.59

After attending UBS's December 11 presentation of its positioning, strategy and outlook, we are lowering our 2007 estimate to a loss of one cent from EPS of $1.19, and 2008's to EPS of $4.29 from EPS of $4.83. We have assumed that retention of personnel to maintain the core franchises will require higher compensation than warranted by revenues, and also that investment banking division losses will not offset Swiss wealth management profits, resulting in a tax charge that effectively wipes out 2007 net profit. We are reducing our discounted cash-flow-based target price by $4 to $49. /D. Chambers

S&P UPGRADES RECOMMENDATION ON SHARES OF ESTEE LAUDER TO STRONG BUY FROM BUY

EL; $43.39

Our upgrade is based on valuation. We think that fundamental positives include that about 60% of Estee Lauder's operating income comes from outside the Americas geographic segment, that growth in other channels in the Americas offsets lingering issues from U.S. department store closures and conversions, and the prospect that Estee Lauder's current strategic initiatives program will help drive future sales gains. We are maintaining our P/E-based 12-month target price of $51 which uses our calendar 2008 EPS estimate of $2.53 as a base. /L.Braverman, CFA

S&P REITERATES STRONG BUY ON SHARES OF QUIKSILVER, INC.

ZQK; $9.52

October-quarter EPS is flat at 51 cents, below our 55 cents estimate, before $1.55 impairment charge. Apparel sales rose 22% with margin expansion. But Rossignol and Quiksilver's other equipment businesses continue to impede operating results in October-quarter and current quarter. Quiksilver seeks reduced hardgoods exposure, and just closed sale of Cleveland Golf. We continue to see opportunity for successful development of Rossignol as an activewear lifestyle brand, like the company's Quiksilver, Roxy and DC. Meanwhile, we cut our fiscal 2008 (Oct.) estimate to 70 cents from 85 cents and 12-month target price to $15 from $18. /M. Driscoll, CFA


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