Markets & Finance

S&P Picks and Pans: Ambac, Yahoo, Costco, Micron, Seagate, Goldman Sachs


Opinions on stocks in the news Wednesday

From Standard & Poor's Equity ResearchS&P KEEPS HOLD RECOMMENDATION ON SHARES OF AMBAC FINANCIAL GROUP (ABK; 9.06):

ABK shares weakened today after the company announced plans to raise at least $1.5 billion of capital through the sale of common stock and equity units. We attribute some weakness to investor disappointment that a "bailout" plan was not unveiled, particularly as unconfirmed reports on CNBC and other media outlets indicated a plan was imminent for the past several weeks. We expect ABK to take more actions as it seeks to shore up its businesses, and we cannot rule out a more drastic restructuring. Our $11 target price assumes the shares remain at a discount to historical averages. - C.Seifert

S&P REITERATES HOLD OPINION ON SHARES OF YAHOO (YHOO; 28.06):

According to unconfirmed reports from the NY Times and Wall Street Journal, YHOO continues to pursue alternatives to Microsoft's (MSFT; 27.60) bid for it, most recently some type of combination with Time Warner's (TWX; 15.30) AOL. We continue to believe MSFT's offer likely constitutes the best value for YHOO shareholders, despite the decline in value due to a drop in MSFT shares, notwithstanding other possibilities that include combinations with other entities. We also believe YHOO will try to delay its shareholder meeting to July, in order to buy some time. - S.Kessler

S&P RAISES OPINION ON SHARES OF COSTCO TO BUY FROM HOLD (COST; 60.60):

Our upgrade is based on valuation as the shares, after a recent decline, are trading below our new $68 12-month target price, cut by $8 on updated comparative and p-e analyses. February-quarter EPS of $0.74 vs. $0.66 is $0.01 below our estimate. However, the increase was driven by 7% comp-store sales growth and share repurchases, despite lower net interest income. Merchandise margins seem to be supported by fewer electronics returns reflecting a new returns policy. We keep our fiscal year 2008 (August) EPS estimate of $3.00, believing COST's competitive pricing position will help keep marketshare. - J.Agnese

S&P REITERATES HOLD RECOMMENDATION ON SHARES OF MICRON TECHNOLOGY (MU; 7.00):

Memory prices continue to be weak, and in some cases, worse than our expectations. We think oversupply remains an issue, and believe economic headwinds could pressure demand in the second half of the year. We expect more weakness in sales and margins, and we are increasing our fiscal year 2008 (August) loss per share estimate by $0.20, to $0.77. We are also cutting our 12-month target price by $1, to $9, based on forward relative analysis. However, we think the company's cost cuts should aid longer-term results, and we believe that valuations are low on a historical basis. - C.Montevirgen

S&P REITERATES STRONG BUY OPINION ON SHARES OF SEAGATE TECHNOLOGY (STX; 23.25):

Citing growth in high-end, high-margin drives, STX raises its March-quarter operating EPS guidance to about $0.70 from $0.64. In our view, consumption of online services and digital media will continue unabated, driving the need for storage products. We think STX's market leadership position across most hard disk drive segments will help it weather economic uncertainties, and we see a rise in profits in 2008 behind efficient operations and a history of strong execution. We are raising our fiscal year 2008 (March) EPS estimate by $0.03 to $2.56, and our DCF- and p-e-blended target price by $1 to $28. - J. Hingorani

S&P KEEPS BUY RECOMMENDATION ON SHARES OF GOLDMAN SACHS (GS; 165.45):

We are cutting our February-quarter EPS estimate to $2.82 from $4.96 to reflect writedowns related to the firm's commercial and residential mortgage exposures and leveraged loan balances, as well as a deterioration in its advice and underwriting businesses. We also expect losses related to its public principal investments. We are reducing our fiscal year 2008 (November) estimate to $15.39 from $19.92. We lower our target price by $50 to $200, 1.9 times projected book value, a premium to reduced peer multiples, which we believe is warranted by GS's strong track record of peer-best results. - M.Albrecht


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