Markets & Finance

S&P Picks and Pans: Monsanto, Goldman Sachs, Ericsson, 3Com, Sirius, XM Satellite


Analysts' opinions on stocks in the news Tuesday

From Standard & Poor's Equity ResearchS&P REITERATES HOLD RECOMMENDATION ON SHARES OF MONSANTO (MON; 113.17):

Sharp price increases in grains are supporting a strong uptake of Monsanto's corn traits and increasing demand for soybean seeds, in our view. As farmers reach for added yield they appear willing to buy more herbicides. We boost our fiscal year 2008 (August) revenue forecast by 6% to $10.9 billion, and raise our fiscal year EPS estimates by $0.50 to $3.25 for fiscal year 2008, and by $0.27 to $3.57 for fiscal year 2009 to reflect wider margin assumptions. However, we increase our target price by just 2 to 130, based on discounted cash flow (DCF) and relative metrics as we expect share price volatility to rise once U.S. planting season passes. -K. Kirkeby-CFA

S&P MAINTAINS BUY RECOMMENDATION ON SHARES OF GOLDMAN SACHS (GS; 182.13):

We think GS is positioned to benefit from turmoil created by the crisis of confidence in Bear Stearns (BSC; 10.80). We think GS's strong reputation and extensive relationships with alternative asset managers should allow it to attract new prime brokerage clients that may have left BSC over liquidity concerns. We also believe the company has utilized the discount window as a means to diversify its funding source and take advantage of inexpensive capital. We are raising our target price by 35 to 210, based on a premium multiple to peers, and our EPS estimates remain intact. -M. Albrecht

S&P MAINTAINS HOLD OPINION ON ADSS OF ERICSSON (ERIC; 18.80):

We are cutting our handset shipment forecast for ERIC to 105 million from 124 million, and we believe modest growth in the Sony Ericsson joint venture will pressure ERIC's profitability. The company lowered its first quarter sales forecast late last week, but we think the challenges will persist through much of 2008. We are cutting our 2008 earnings per ADS estimate by $0.13 to $1.81, to reflect a narrower operating income margin, and see fractionally higher revenues at its large networking segment. Based on revised relative valuation analysis, we are lowering our 12-month target price by $5 to $20. -T. Rosenbluth

S&P REITERATES HOLD OPINION ON SHARES OF 3COM (COMS; 2.10):

3Com posts February-quarter EPS of $0.07, vs. $0.02, beating our $0.03 estimate, largely reflecting a wider gross margin of 53%, up 500 basis points sequentially, and strong revenue contributions from China. COMS plans to pursue a $66 million breakup fee related to Bain Capital's recent termination of its $2.2 billion September acquisition offer. While we expect COMS to experience solid business momentum in China, we see overall demand for legacy stackable switching products being dampened by the effects of competitive pressures. Based on our sum-of-the-parts valuation, we keep our target price at 2.50. -A. Bensinger

S&P MAINTAINS HOLD OPINION ON SHARES OF SIRIUS SATELLITE RADIO (SIRI; 3.15) AND STRONG SELL OPINION ON XM SATELLITE RADIO (XMSR; 13.79):

Both shares rose sharply in late afternoon trading Mar. 24 after antitrust approval for SIRI's merger with XM Satellite. We saw approval odds near 50/50, but we are somewhat surprised by DoJ's unqualified view that the SIRI/XMSR combo is not anti-competitive. As XMSR/SIRI spread of the fixed exchange ratio narrows significantly, it now seems certain the FCC will green light the deal in short order. Still, we would not rule out conditions that could limit realized synergies, even as near-term category fundamentals, particularly retail sales, will likely remain challenging. -T. Amobi, CPA, CFA


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