Markets & Finance

S&P Picks and Pans: Citigroup, Intel, Staples, Barnes & Noble, Jackson Hewitt


Analysts' opinions about stocks in the news Tuesday

From Standard & Poor's Equity ResearchS&P MAINTAINS HOLD OPINION ON SHARES OF CITIGROUP (C; 22.29):

An unconfirmed report by CNBC says Citigroup could cut 30,000 or more jobs over the next 12 to 18 months, as part of its company-wide cost review. That number would represent 8% of its approximately 374,000 employees. The head of Dubai International Capital also said that Citigroup may need a lot more money from outside investors because of subprime related writedowns. On our expectation of further writedowns and higher provisions for loan losses, we are cutting our 2008 EPS estimate to $1.05 from $2.99, and lowering our target price to 26 from 36 based on forward p-e analysis. -S. Plesser, F. Braden

S&P REITERATES HOLD OPINION ON SHARES OF INTEL (INTC; 20.01):

In an update on first quarter, INTC provides a gross margin figure below previous guidance and our expectation. It now projects 54%, plus or minus a couple of points, compared to its previous estimate of around 56%. It cites lower NAND flash memory prices than expected as the reason for the anticipated miss. We see near-term weakness in this segment, and are modeling modestly lower margins over the next two quarters. As a result, we reduce our first quarter EPS estimate by $0.02 to $0.32, and our full-year 2008 estimate by $0.03 to $1.40. However, we are keeping our 12-month target price at 23. -C.Montevirgen

S&P REITERATES BUY RECOMMENDATION ON SHARES OF STAPLES (SPLS; 21.82):

January-quarter EPS of $0.47, vs. $0.46, is a penny shy of our estimate. A decline in same-store sales of 6% in SPLS's North American Retail division was significantly below our estimate of a 2% decline, but we think SPLS did a formidable job of controlling costs, given soft economic conditions. We think calendar 2008 will represent another challenging year, and we are lowering our fiscal yar 2009 (January) EPS estimate to $1.51 from $1.58. We are also initiating fiscal year 2010 EPS forecast at $1.69 and are trimming our discounted cash flow (DCF)-based target price by 1 to 28. We think shares are attractive at about 14 times our fiscal year 2009 EPS estimate. -M. Souers

S&P REITERATES HOLD RECOMMENDATION ON SHARES OF BARNES & NOBLE (BKS; 25.15):

January-quarter comp-store sales decline of 0.5% is in line with our projection. We think challenging economic conditions and lack of a Harry Potter book, which boosted sales and traffic in fiscal year 2008 (January), will allow pressure against fixed expenses in fiscal year 2009. Also, we think the longer-term fundamental outlook for the book retail industry is negative, given likely margin compression amid competitive pricing by online retailers. We are increasing our fiscal year 2008 EPS estimate to $1.90 from $1.86, but are lowering fiscal year 2009's to $1.82 from $2.02, and we cut our DCF-based target price by 6 to 29. -M.Souers

S&P MAINTAINS BUY RECOMMENDATION ON SHARES OF JACKSON HEWITT TAX SERVICE (JTX; 14.30):

Shares are trading down about 29% this morning following JTX's disappointing earnings announcement. January-quarter EPS of $0.61, vs. $0.83, misses our $1.04 estimate and the Street's $0.96. Revenues declined 15% with weakness in all segments as a volume decline of almost 14% offset the benefit of 4% more offices and slightly higher revenues per return. Although the company sees declines abating in February, we are concerned that other tax preparers are gaining marketshare on JTX. -J.Peters-CFA


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