Markets & Finance

S&P Picks and Pans: Amgen, Panera, 3Com, IR, Loews


Analyst opinions on stocks making headlines Monday

S&P REITERATES BUY OPINION ON SHARES OF AMGEN INC.

From Standard & Poor's Equity Research

AMGN; $47.84

Amgen announces positive Phase III data for denosumab of 5.5% difference in bone mineral density after one year, and 7.6% after two years, in breast cancer patients on adjuvant Aromatase Inhibitor Therapy. The study revealed a favorable safety profile, with similar adverse events to placebo. We remain optimistic about denosumab, injected twice annually, as a key component in Amgen's long-term strategy to diversify revenues beyond its EPO franchise. We expect further denosumab data in 2008, including a large osteoporosis study by late 2008. We are keeping our target price at $64. /S. Silver

S&P MAINTAINS SELL OPINION ON SHARES OF PANERA BREAD CO.

PNRA; $36.89

We think Panera is particularly exposed to recent increases in wheat costs, as it chose to not make forward commitments for flour purchases into 2008. We do not think rising flour costs will be offset by a 5% average price increase enacted in November for fresh dough products sold through company commissaries and a 2.5% menu price increase, and we believe that Panera has limited pricing power should it attempt to raise dough or menu prices further. We are lowering our 2008 EPS estimate by 10 cents to $1.80, and are trimming our DCF-based target price by $4 to $33. /M. Basham

S&P REITERATES HOLD OPINION ON SHARES OF INGERSOLL-RAND

IR; $46.39

Shares are off over 5% this morning after IR agrees to acquire Trane (TT) for $36.50 a share in cash plus 0.23 IR shares, a sum of $10.1 billion based on Friday's close. The boards of both companies have approved the pact, which is expected to close in first half 2008, subject to approvals. We think the deal would be beneficial to IR, as we view Trane as a well-run climate control company whose growth is likely to continue to outpace peers'. But we think IR is paying a rich valuation of 1.3X our 2008 sales forecast for Trane. We are keeping our target price for IR at $52. /C. Lippincott, M. Jaffe

S&P MAINTAINS HOLD OPINION ON SHARES OF 3COM CORP.

COMS; $4.30

The pending $2.2B acquisition of 3Com by Bain Capital and Hauwei Technologies has come under increased scrutiny due to security concerns related to Chinese-based Hauwei ownership interest in 3Com. We note that Hauwei would control a minority 16.5% stake in the company, with an option to acquire another 5% based on certain performance criteria, and only three out of the eleven board seats. Given that 3Com would be firmly controlled by an American firm, we believe the deal is likely to close, although the approval process may take longer than we had expected. /A. Bensinger

S&P REITERATES BUY OPINION ON SHARES OF LOEWS CORP.

LTR; $48.54

Loews announces plans to spin off its entire ownership interest in Lorillard to the owners of its Carolina Group (CG) tracking stock (62%), and remaining 38% interest to LTR shareholders through an exchange or dividend, subject to customary closing conditions. The transaction is expected to be completed in mid-2008. We believe the move should reduce the company's risks related to litigation from exposure to the cigarette business, but also eliminates a stable source of cash flows. We are keeping our target price at $57, based on a sum-of-the-parts valuation. /M. Albrecht, T. Shafi

S&P MAINTAINS BUY RECOMMENDATION ON SHARES OF ACE LIMITED

ACE; $60.26

We view positively ACE's decision to acquire Combined Insurance the company from Aon Corp. (AOC) for $2.4 billion in cash in a deal set to close in the second half of 2008. The deal is expected to be accretive to 2008 earnings and to expand ACE's presence in the supplemental health arena, helping to offset the cyclicality of the property-casualty business. We also think this proposed deal is an effective use of ACE's excess capital. We expect more details on today's 11 a.m. ET conference call. We are keeping our $70 target price, 9X our $7.75 2007 operating EPS estimate, close to peer averages. /C. Seifert


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