Markets & Finance

S&P Picks and Pans: Bond Insurers, Citi, UBS, Best Buy


Analyst opinions on stocks making headlines in Friday's market

S&P REITERATES NEUTRAL STANCE ON FINANCIAL GUARANTY INSURERS

From Standard & Poor's Equity Research

We believe mounting pressure from multiple sources, including politicians trying to address what we see as a mounting municipal finance crisis, increases the likelihood that other bond insurers may seek to split into two entities, for muni bond insurance and for structured finance. Although we believe this may speed resolution, we advise equity investors to be cautious. Because of its top-tier financial strength, we have a buy opinion on Assured Guaranty (AGO; $22.58) , but would hold Ambac (ABK; $10.02) , Security Capital (SCA; $1.60), and sell MBIA (MBI; $11.98). /C. Seifert

S&P KEEPS HOLD RECOMMENDATION ON SHARES OF CITIGROUP

C; $25.36

An unconfirmed report in the Wall Street Journal this morning says that Citi has halted investor withdrawals from its CSO Partners hedge fund, which specializes in corporate debt. Investors are reportedly attempting to pull out more than 30% of the fund's $500 million in assets. Citi just recently infused $100 million into the fund whose long-time manager left recently amid a dispute with company management after an outsized bet he made went bad. We do not anticipate meaningful charges associated with this development, but credit market concerns continue to weigh on these shares. /M. Albrecht, F. Braden

S&P RAISES RECOMMENDATION ON SHARES OF UBS AG TO BUY FROM HOLD

UBS; $33.02

UBS posts Q4 loss of 12,451 million Swiss francs, vs. profit of 3,407 million francs one year earlier, in line with our estimate. The per-share loss was 6.52 francs, or $5.97, below our estimate of a 6.30 francs loss, or $5.77. For 2008, we project earnings per share of 4.38 francs, or $4.01, down slightly from our previous estimates. On valuation, and on our view that UBS's global wealth management and Swiss retail businesses should continue to perform strongly, we are raising our recommendation to buy, with a target price of $46, trimmed $3 today, based on our discounted cash-flow (DCF) valuation assuming a cost of equity of 10.5%. /D. Chambers

S&P KEEPS HOLD OPINION ON SHARES OF NYSE EURONEXT

NYX; $68.35

The company agrees to acquire a 5% equity position in the Multi Commodity Exchange, India's leading commodity exchange. This follows the January '07 purchase of a 5% stake in India's National Stock Exchange, highlighting the company's continued plans to expand across borders. We believe the new move will also help to expand the company's product portfolio. Consummation of the transaction is expected to take place in the first half of '08, subject to customary closing conditions. /M. Albrecht, J. Willey

S&P MAINTAINS HOLD RECOMMENDATION ON SHARES OF WEIGHT WATCHERS INTERNATIONAL

WTW; $49.07

Q4 EPS of 50 cents, vs. 39 cents one year earlier, is 2 cents above our estimate. The upside came primarily from stronger North American attendance fees than we expected, reflecting the increased penetration of Weight Watchers’ Monthly Pass model. However, attendance grew just 1% in North America, while it declined in other geographic markets. We are maintaining our '08 EPS estimate of $2.81, vs. operating EPS of $2.50 in '07, which is at the low end of the company's guidance of $2.80 to $3.00. We are cautious because of the weak attendance figures. We keep our $55 P/E-based 12-month target price. /L. Braverman, CFA

S&P REITERATES STRONG BUY RECOMMENDATION ON SHARES OF BEST BUY

BBY; $44.05

BBY lowers EPS guidance to $3.05-$3.10 for fiscal 2008 (Feb.), following weaker than expected same-store-sales results so far in the February quarter. We think the macro environment will remain challenging near-term, and we are lowering our fiscal 2008 and fiscal 2009 EPS estimates to $3.08 and $3.49, from $3.19 and $3.70. We are also trimming our DCF-based target price by $3 to $60. However, we remain positive on long-term health of consumer electronics, and think shares of Best Buy remain undervalued, trading at trough P/E levels of 12.6 times our fiscal 2009 EPS estimate and at a P/E-to-growth ratio of 0.9X. /M. Souers


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