Markets & Finance

S&P Picks and Pans: Berkshire, AMD, MGM Mirage, Varian


Analyst opinions on stocks making headlines in Friday's market

S&P MAINTAINS HOLD OPINION ON CLASS A SHARES OF BERKSHIRE HATHAWAY

From Standard & Poor's Equity Research

BRKA; $139800

The company announces that it is entering the municipal bond insurance business, initially in New York state, with the intention of opening in other states in coming months. We are in favor of the move, since the viability of other players in the space, including Ambac (ABK) and MBIA (MBI), is under question amid concerns about deteriorating capital levels. Berkshire, which has sufficient capital, is likely to attract muni insurance business, as municipalities are apt to favor its strong capital levels. We maintain our 12-month target price of $140,000. /S. Plesser, C. Seifert

S&P REITERATES HOLD OPINION ON SHARES OF ADVANCED MICRO DEVICES

AMD; $7.49

We are cutting our 12-month target price by $8, to $9, following changes to our model and risk analysis. We now expect an 2008 loss per share of $1.46, widened from our previous estimate of $1.41, on projected slower margin recovery. We believe AMD has not executed well on the launch of new chips and may continue to face problems executing technology and profitability plans given financial problems and formidable competition from Intel (INTC) and NVIDIA (NVDA). But AMD shares have fallen 60% year to date, and now trade at what we view as a low valuation. /C. Montevirgen

S&P REITERATES HOLD RECOMMENDATION ON SHARES OF MGM MIRAGE

MGM; $85.64

We are not surprised by today's SEC filing on Dubai World's increased stake in MGM. Dubai had sought to purchase an additional 14.2 million shares through a cash tender offer at $84 per share in conjunction with its purchase through private placement of 14.2 million shares at $84 in October. At that time, Dubai intended to own as much as 9.5% of MGM, but less than 350,000 shares were tendered. With Dubai's stake at 6.5% now, we think there could be added support for shares at the $84-$85 level. We are keeping our 12-month target price of $93 based on peer P/E and sum-of-the-parts analyses. /E. Kwon, CFA

S&P UPGRADES SHARES OF VARIAN SEMICONDUCTOR EQUIPMENT TO BUY FROM HOLD

VSEA; $37.36

We see potential for margin expansion and further market share gains, primarily in Japan and from winning the remaining Applied Materials (AMAT) customers as that company exits the business, as major positive catalysts for Varian. While we view uncertainty related to memory equipment spending by semiconductor makers as a headwind, we believe this is largely reflected in Varian's stock price following a decline of over 35% since the September peak. We are keeping our fiscal 2008 (Sept.) EPS estimate of $2.47, but trimming our 12-month target price by $2 to $45. /A. Zino, CFA

S&P REITERATES HOLD OPINION ON SHARES OF THE FINISH LINE

FINL; $2.31

The Chancery Court in Nashville (Tenn.) has ruled that Finish Line cannot back out of its merger agreement with Genesco (GCO). That said, a suit by UBS AG (UBS), which had committed financing to Finish Line, seeking to halt the merger is still pending in the U.S. District Court for the Southern District of New York. The merger would be halted if the New York Court determines that a combined Finish Line-Genesco would go bankrupt. We believe completion of the merger has been priced into Finish Line shares, which are trading at forward P/E and price-to-sales multiples well below peers. /J. Asaeda


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