Markets & Finance

S&P Picks and Pans: News Corp., IndyMac, Bear Stearns, Total


Analyst opinions on stocks making headlines in Thursday's market

From Standard & Poor's Equity ResearchS&P MAINTAINS BUY OPINION ON CLASS B SHARES OF NEWS CORPORATION

NWS; $19.23

Unconfirmed media reports suggest NWS.A may be in talks to swap Myspace and other Internet holdings for stake in Yahoo! (YHOO), facing unsolicited Microsoft (MSFT) buyout bid. Although we note CEO Murdoch earlier this month ruled out an all-out Yahoo! bid, we think it conceivable that News Corp. could mull a minority stake as path to an accelerated online monetization as it nears unwinding of DirecTV (DTV) stake. But with the company yet to digest its Dow Jones acquisition, we are wary of distraction. /T. Amobi, CPA, CFA

S&P DOWNGRADES RECOMMENDATION ON SHARES OF INDYMAC BANCORP TO SELL FROM HOLD

IMB; $8.00

Although we support IndyMac's plan to shrink its balance sheet, we are concerned that legacy loans will hurt performance. IndyMac added $450 million in credit costs in Q4 compared with Q3, and we still believe it is under-reserved. Notably, allowances total only 30% of non-performing loans, well below peers, especially considering the roughly $10 billion of low quality held-for-sale loans transferred to held-for-investment. We are widening our '08 loss estimate to 74 cents per share, from a loss of 37 cents, and lowering our target price by $3 to $6, 0.35X book value. /S. Plesser

S&P MAINTAINS HOLD OPINION ON SHARES OF BEAR STEARNS

BSC; $80.53

An unconfirmed report in the Financial Times states that CITIC Securities and Bear are renegotiating the share swap deal they reached in October '07, in order to reflect their falling stock prices and to appease Chinese regulators, who have yet to approve the deal. Total investments would remain about $1 billion, but CITIC could up its stake in Bear from 6% to 9.9% and Bear could increase its stake in CITIC to 7.5% from 2%. We believe this development further dilutes the stakes of current shareholders, but increased exposure to the Chinese securities market may prove profitable. /M. Albrecht

02/14/2008- 12:01pm S&P UPGRADES ADSS OF TOTAL TO STRONG BUY FROM BUY

TOT; $73.42

Total posts Q4 earnings per ADS of $1.99 vs. $1.58, $0.08 better than our estimate, led by better-than-expected hydrocarbon sales. Total guides for upstream hydrocarbon production growth of 4% through 2010, driven by projects recently put into production. We are encouraged by the company's performance outlook and the industry macroenvironment. We see a robust LNG market and strong oil prices continuing into the foreseeable future. We are maintaining our discounted cash-flow (DCF)-based 12-month target price of $101, assuming a weighted average cost of capital of 10% and a terminal growth rate of 3%. /C. Tiscareno

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

IR; $39.80

Q4 EPS of 82 cents, vs. 60 cents one yhear earlier, both before items, is once cent above our estimate. Sales rose 8%, including 4% organic. We see '08 and '09 sales up 6%, driven mostly by industrial technology and climate control segments. Gains should come from IR's leading position in attractive global end markets and continued shift away from cyclical businesses. We raise our '08 EPS estimate to $3.54 from $3.43 and set '09's at $4.06. Both exclude the pending acquisition of Trane (TT) . We trim our 12-month target price $2 to $50 on lower peer valuations and revised DCF analysis. /C. Lippincott

S&P UPGRADES OPINION ON ADSS OF SUNTECH POWER TO STRONG BUY FROM BUY

STP; $50.92

With ADSs down over 40% since early January, Suntech's valuation is more appealing to us, especially after First Solar's (FSLR) very strong earnings report yesterday. Part of First Solar's performance was company specific, but we think its results show how strong demand is for solar energy. We also view Suntech as well run, with sizeable orders locked in for '08 and holding what we see as favorable silicon purchase contracts. We trim our target price by $12 to $78, 43X our '08 EPS estimate, to reflect big drop in peer valuations but still offering strong appreciation potential. /M. Jaffe


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