Markets & Finance

S&P Picks and Pans: Monsanto, Microsoft, Yahoo, IndyMac


Analyst opinions on stocks making headlines in Tuesday's market

From Standard & Poor's Equity ResearchS&P REITERATES HOLD OPINION ON SHARES OF MONSANTO

MON; $116.93

Monsanto increased its fiscal 2008 (Aug.) EPS guidance range by 20 cents to $2.70-$2.80, based on strong demand for corn seed in the U.S. and Latin America, and growth in herbicides. The company also now projects free-cash flow near the high end of its $900 million-$1 billion previous forecast. In our view, earnings should continue to benefit into fiscal 2009 from market share expansion, new products, and price hikes. We are raising our fiscal 2008 and fiscal 2009 EPS estimates by 10 cents and 53 cents, to $2.75 and $3.30, respectively. Based on our revised discounted cash-flow (DCF) and relative metrics, we raise our target price by $8 to $128. /S. Scharf

S&P MAINTAINS STRONG BUY RECOMMENDATION ON SHARES OF MICROSOFT

MSFT; $28.21

Microsoft describes Yahoo's decision to reject its $31 a share takeover bid as "unfortunate" and plans to pursue all necessary steps to ensure that Yahoo's shareholders have the opportunity to realize the value inherent in Microsoft's proposal. We believe this will lead to a proxy fight for control of Yahoo, and would also put pressure on Yahoo's management to put forth and execute a credible turnaround plan to justify a value higher than $31 a share. We think Microsoft will ultimately be successful in acquiring Yahoo, although it may require some negotiation and time to complete. /J. Yin

S&P REITERATES HOLD OPINION ON SHARES OF YAHOO INC.

YHOO; $29.87

Yesterday Yahoo said Microsoft's takeover offer "substantially undervalues" the company and "is not in the best interests" of the company and its shareholders. Microsoft responded, noting that it is "unfortunate" that Yahoo has not "embraced [its] full and fair proposal." Despite considerable speculation about numerous options for Yahoo, we do not think they would generate the value constituted by Microsoft's offer. While we think modestly greater consideration is possible, to expedite progress, we do not think Yahoo shareholders should expect materially higher offer. /S. Kessler

S&P MAINTAINS HOLD OPINION ON SHARES OF INDYMAC BANCORP

IMB; $7.19

IndyMac posts Q4 operating loss of $6.43 per share vs. EPS of 97 cents one year earlier, $5.59 wider than our 84 cents loss estimate, and much worse than consensus. Results were hurt by larger-than-expected write-downs, including a four-fold increase in credit reserves to $2.4 billion. But on the positive side, the company ended the quarter with nearly $6 billion in liquidity and 6.2% in tier 1 capital, down from 7.4% last year. IndyMac opted to suspend its dividend, which should save $400 million in 2008. We will update after the conference call, scheduled for 11 a.m. /S. Plesser

S&P MAINTAINS HOLD RECOMMENDATION ON SHARES OF VORNADO REALTY

VNO; $85.25

An unconfirmed Wall Street Journal report says developer Harry Macklowe has defaulted on over $7 billion in loans on seven NYC office buildings. Vornado holds subordinated debt of $66.4 million secured by four of the assets. We believe a workout plan will be reached to compensate debt holders. However, should the buildings be sold at less than their original purchase price last year, Vornado may need to write down part of its investment. In view of Vornado's diversified asset base and strong balance sheet, we do not consider this material to our outlook on the stock. We keep our $88 target price. /R. Shepard

S&P REITERATES HOLD OPINION ON SHARES OF SCHERING-PLOUGH

SGP; $21.49

Schering posts a fourth-quarter GAAP loss of $2.08 per share, vs. EPS of 12 cents one year earlier. Before charges, mainly from the November 2007 purchase of Organon, fourth-quarter EPS is 27 cents, 2 cents above our estimate. We attribute the fourth-quarter upside to 35% higher sales of Remicade, a 33% rise in income from the Vytorin/Zetia venture and a lower tax rate. But we think near-term results will reflect declining Vytorin/Zetia Rx trends, impacted by the negative ENHANCE trial, and a mild flu season. On the plus side, we believe Organon and an expanded pipeline hold long-term promise. We are keeping our target price of $25, based on forward P/E and DCF metrics. /H. Saftlas


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