Markets & Finance

Analyst Actions: Lehman Brothers, Tiffany & Co., Oplink


From Standard & Poor's Equity ResearchCITIGROUP UPGRADES LEHMAN BROTHERS TO BUY FROM HOLD

Citigroup analyst Prashant Bhatia says after being on sidelines for a couple of years, he sees current Lehman Brothers (LEH) valuation as an extremely attractive entry point. Furthermore, he notes its recent profitable quarter in a tough environment, coordinated actions taken by the Fed and Treasury to provide meaningful liquidity, Lehman management's excellent track record of creating value and managing risk all serve as excellent downside protection.

Bhatia says it's tough to have a liquidity-driven meltdown when you're being backed by government entities that have the ability to print money. He estimates that with write-downs aside, Lehman had its second best fixed income trading quarter ever, and generated 20- plus ROE during the first quarter.

He sets 65 price target for the stock.

MERRILL DOWNGRADES TIFFANY & CO. TO SELL FROM NEUTRAL

Merrill Lynch analyst Lorraine Maikis says Tiffany & Co.'s (TIF) 2008 guidance assumes improving U.S. trends in the second half, which she thinks is overly optimistic. She also sees risk to Tiffany's core high end customer, who will be negatively affected by Wall Street layoffs and poor investment performance, and will not benefit from the fiscal stimulus rebate package.

At yesterday's close, Tiffany shares traded at 16.2 times $2.66 fiscal year 2009 EPS estimate, a premium to U.S. retailers and European luxury companies. Maikis thinks TIF deserves a premium to Euro luxury companies because it gets a benefit from the weak US dollar, and views a 14-14.5 p-e ratio as appropriate.

She notes that the stock is up 16% after the company beat fourth quarter estimates and raised its 2008 outlook; much of the increase in guidance came from an inventory accounting change.

NEEDHAM CUTS OPLINK COMMUNICATIONS TO HOLD FROM STRONG BUY

Needham analyst John Harmon says Oplink Communications' (OPLK) lower third quarter outlook is due to soft sales in Europe, hurt by additional softness in ROADMs and Optical Communication Products (OCP). He notes OPLK now sees $39-$40 million third quarter revenue, vs. prior guidance of $41-$45 million; he now sees non-GAAP EPS falling below $0.12-$0.16.

Oplink also sees continued softness in the fourth quarter from lower ROADM sales and from lower sales during transfer of OCP's manufacturing lines from California to China. Harmon says in the fourth quarter, the company's core business was weak due to softness in Ericsson (ERICY), which will likely persist into the first quarter. He notes other European customers include Alcatel-Lucent (ALA) and Transmode.

Harmon cuts fiscal year 2008 (June) EPS estimate to $0.48 from $0.76, and fiscal year 2009 to $0.70 from $1.60.


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