Markets & Finance

S&P Picks and Pans: Oracle, Google, ConAgra, Scholastic, Lennar


Analysts' opinions on stocks in the news

From Standard & Poor's Equity ResearchS&P MAINTAINS STRONG BUY RECOMMENDATION ON SHARES OF ORACLE (ORCL; 20.94):

Shares are indicated lower this morning after ORCL posts in-line February-quarter operating EPS of $0.29, vs. $0.24. Sales grew 21% to $5.37 billion, below our $5.4 billion view despite 6% benefit from forex. We are concerned that new license grew 7% for applications vs. 57% a year ago. While comparisons were tough, ORCL noted a lengthening of sales cycles brought on by macroeconomic conditions in the U.S. We keep our EPS estimates at $1.25 for fiscal year 2008 (May) and $1.45 for fiscal year 2009, but lower our target price by $3 to $24 on modest growth assumptions in our DCF model and lower p-e multiples for software peers. -Z. Bokhari

S&P REITERATES HOLD OPINION ON SHARES OF GOOGLE (GOOG; 446.11):

Shares are indicated materially lower in pre-market trading, as comScore reports that GOOG's paid clicks in February grew 3% annually. While this is an improvement from the slight yearly decline in January, adjusting for the extra day in February results in basically flat paid clicks. Fourth quarter paid clicks grew 25%. We believe some of the dramatic deceleration from the fourth quarter is due to so-called quality initiatives, but we think the speed and magnitude are worrisome and reflect broader economic issues. We note that earlier this month we cut our estimates and target price on such concerns. -S. Kessler

S&P RAISES OPINION ON SHARES OF CONAGRA FOODS TO BUY FROM HOLD (CAG; 23.33):

Before special items, February-quarter EPS of $0.63 vs. about $0.44 is $0.23 above our estimate, largely on CAG's trading and merchandising business, which it plans to sell. We estimate the sale, with closing expected by June 30 subject to approvals, would be modestly dilutive to fiscal year 2009 (May) EPS, but we see less profit risk in reshaped CAG, and expect the stock to receive a higher p-e. In fiscal year 2009, we look for stock repurchase and interest income to largely offset divested profit. We estimate $1.59 pro forma fiscal year 2009 EPS and our 12-month target price stays $28. Indicated dividend yield is 3.3%. -T. Graves-CFA

S&P LOWERS OPINION ON SHARES OF SCHOLASTIC TO HOLD FROM BUY (SCHL; 32.15):

Excluding one-time items, February-quarter per-share loss of $0.23, vs. loss of $0.22 is $0.04 narrower than our estimate. But SCHL's May-quarter guidance is well below our forecast, we believe on concerns about slowing economy. On our view of a more modest operating margin gain, and adjusting to exclude a projected fiscal year 2008 (May) loss of $0.32 from SCHL's direct-to-home business, now classified as discontinued pending a sale of the unprofitable unit, we raise our fiscal year 2008 EPS estimate to $2.77 from $2.63. But on a more cautious near-term fundamental outlook, we lower our target price by $5 to $36. -J. Peters-CFA

S&P MAINTAINS HOLD RECOMMENDATION ON LENNAR SHARES (LEN; 18.51):

LEN posts February-quarter loss per share of $0.56 vs. year-ago EPS of $0.43, which includes writeoffs of $0.38 related to valuation adjustments and land option contracts, compared to our $2.32 loss estimate. While we believe there will be more writedowns from LEN's joint ventures, we see lower writeoffs ahead. With reduced backlog, we forecast a 47% year-over-year sales decline for fiscal year 2008 (November), but with our projection of lower future asset charges, we are narrowing our fiscal year 2008 loss estimate to $0.64 from $7.35. Applying slightly above 0.8 times book, we raising our target price to $19 from $14. -K. Leon-CPA


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