Markets & Finance

S&P Picks and Pans: Motorola, RIM, Ford, EA, Jabil, Smith & Wesson


Analyst opinions on stocks making headlines in Wednesday's market

From Standard & Poor's Equity ResearchS&P MAINTAINS HOLD RECOMMENDATION ON MOTOROLA SHARES

MOT; $10.25

Following Motorola's conference call to review its decision to begin approval process to separate handset business from the rest of company, we remain neutral. We believe separation will likely enable Motorola to bring in stronger leadership for handset segment and enable its other, growing communications equipment segments to shine. However, we see Motorola's handset challenges persisting in 2008 as attention shifts to completing the spinoff and customers react to Motorola's uncertain direction. Shareholders would receive a still unknown number of shares in both entities, if the deal is completed. /T. Rosenbluth

S&P DOWNGRADES OPINION ON RESEARCH IN MOTION SHARES TO HOLD FROM BUY

RIMM; $115.95

RIMM shares are up 20% since late January, and have passed our 12-month target price of $115. RIMM has already announced that February-quarter net account additions were stronger than expected, but maintained its revenue and operating EPS guidance ranges. When RIMM reports February-quarter EPS on Apr. 2, which we see at 69 cents, we believe the focus will largely be on its outlook for the May quarter, where our estimates are more conservative than the Street consensus. We believe challenges at financial services customers could impact RIMM. Our valuation assumes a 3-year growth rate of 25% and P/E-to-growth of 1.45 times. /T. Rosenbluth

S&P REITERATES HOLD OPINION ON SHARES OF FORD

F; $6.00

We view Ford's pact to sell the Jaguar and Land Rover vehicle brands to Tata Motors (TTM; $17.36) for $2.3 billion as positive. Ford will make a $600 million payment to the units' pension funds at the expected Q2 closing. While we think Ford should have gotten more cash, we think eliminating the units' drain on Ford's finances, management time, and resources is of greater importance. We expect proceeds to help fund products for the core Ford and Lincoln brands and should help Ford focus on getting products consumers that they want to buy. The deal is subject to standard approvals. /E. Levy, CFA

S&P MAINTAINS SELL RECOMMENDATION ON SHARES OF ELECTRONIC ARTS

ERTS; $49.14

Take-Two Interactive Software (TTWO; $25.99) rejects the company's unsolicited conditional tender offer of $26 per share cash as inadequate, adopted a poison pill, and begins a review of strategic alternatives. Although we expected this announcement, we view it as a negative for EA, because it will make it more difficult for the company to receive tenders for a majority of Take-Two shares before Take-Two's 2008 annual meeting on Apr. 17. While we see EA's current bid as fair, we believe that it will need to raise it in order to complete the acquisition in the near term. /J. Yin

S&P REITERATES HOLD OPINION ON SHARES OF JABIL CIRCUIT, ON VALUATION

JBL; $11.38

Jabil posts February-quarter non-GAAP EPS of 13 cents, vs. 14 cents one year earlier, 11 cents above our operating view, which includes stock option expense. On GAAP basis, Jabil posts a 12-cent loss, vs. 7 cents EPS. Sales rose about 4%, with EMS division recording sequential sales growth and Consumer division showing seasonal weaknesss. However, Jabil provided much lower-than-expected May-quarter and fiscal 2008 (Aug.) guidance, as it anticipates demand weakness in end-markets. Consequently, we are reducing our fiscal 2008 GAAP EPS estimate 29 cents to 51 cents. We are also lowering our target price to $14 from $16 based on our updated P/E analysis. /T. Smith,CFA, C. Montevirgen

S&P INITIATES ANALYTICAL COVERAGE ON SMITH & WESSON SHARES WITH A HOLD OPINION

SWHC; $5.00

We see a number of near-term challenges for the company as it addresses a bloated inventory channel and faces possible continued sales pressure given the declining economy. That said, we belive the company's entrance into the hunting and tactical rifle markets, as well as potential for high-value military contracts, improve its long-term prospects. Our 12-month target price of $5.50 is based on P/E of 16.5 times our fiscal 2009 (Apr.) EPS estimate of 33 cents. This multiple is slightly below Smith & Wesson's historical average, but in line with historical peer averages. /E. Kolb


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