Markets & Finance

S&P Picks and Pans: News Corp., U.S. Steel, Sallie, Verigy


Analyst opinions on stocks making headlines in Thursday's market

S&P MAINTAINS BUY OPINION ON CLASS A & B SHARES OF NEWS CORPORATION

From Standard & Poor's Equity Research

Class A: NWSA; $20.92

Class B: NWS; $21.75

Unconfirmed reports in the Wall Street Journal and Financial Times, which we view as credible, say the company's 20th Century-Fox unit will offer film rentals via Apple's (AAPL) iTunes. We note Disney (DIS) and Viacom (VIA) also offer films for pay-to-download via iTunes, but we see lingering hesitancy by studios due to current/catalog pricing. We think long-term viability of variant subscription models for features is yet unproven, but we see any significance of such a pact underscored by News Corp.'s and GE's (GE) NBC Universal's recent launch of ad-supported Hulu.com. /T. Amobi, CPA, CFA

S&P DOWNGRADES OPINION ON SHARES OF U.S. STEEL TO HOLD FROM BUY, ON VALUATION

X; $119.42

We continue to estimate EPS of $9.54 in 2007 and $9.90 in 2008. But following a recent rise in the share price, we believes that the stock is no longer undervalued, selling at 11.9 times our 2008 EPS estimate. Long-term, we see the company's earnings benefiting from ongoing consolidation of the steel industry, rising demand for oil country tubular goods, greater pricing power and market-share gains from imports. But as the shares now trade with only modest upside to our 12-month P/E-based target price of $120, we would not add to positions. /L. Larkin

S&P MAINTAINS BUY OPINION ON SHARES OF SALLIE MAE

SLM; $22.13

SLM announces it plans to raise $2.5 billion through public stock offerings, with most of the proceeds to be used to settle equity forward-purchase contracts. Although we are disheartened by the size of offering, we note that most of the proceeds will be used to buy back 44 million shares at higher prices, somewhat mitigating the dilutive effect of the offering. We note that about $1 billion to be offered will be convertible preferred stock; it is unclear at what price the issuance could be converted. We expect further annoucements, as SLM looks to shore up its capital base. /S. Plesser

S&P INITIATES COVERAGE OF SHARES OF VERIGY LTD. WITH BUY RECOMMENDATION

VRGY; $26.07

We think Verigy has strong growth potential, as we expect share gains in the testing market for the faster-growing semiconductor segments, and widening margins for Verigy as its outsourced manufacturing moves to China. We are somewhat concerned about capital expenditures among chipmakers, but we think that equipment spending will resume in certain segments, such as NAND flash, which, combined with market share gains, should aid Verigy's sales. We are setting our 12-month target price at $31, based on a peer-average P/E of 15X our fiscal 2008 (Oct.) EPS estimate of $2.09. /C. Montevirgen


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