Markets & Finance

S&P Picks and Pans: Merck, Schering-Plough, IACI, Citi, Altria


Analyst opinions on stocks making headlines in Monday's market

From Standard & Poor's Equity ResearchS&P REITERATES HOLD OPINION ON MERCK SHARES

MRK; $37.82

Based on recently released full ENHANCE data, a panel of prestigious cardiologists recommended Zetia (and indirectly Vytorin) be used only for patients who fail regular statin therapy. In light of this, we expect Vytorin/Zetia joint venture '08 sales to fall 20%-25% from '07's $5.2 billion. But we see the hit to Merck cushioned by strength in other lines and the likely FDA approval of its new Cordaptive niacin-based cholesterol drug in April. We are cutting our 12-month target price by $10 to $45, based on revised discounted cash-flow (DCF) and forward P/E assumptions. Merck's $1.52 dividend yields 4.0%. /H. Saftlas

S&P REITERATES HOLD OPINION ON SHARES OF SCHERING-PLOUGH

SGP; $14.43

Based on recently released full ENHANCE clinical data, a panel of prestigious cardiologists recommended Zetia (and indirectly Vytorin, a Zocor/Zetia combo) to be used only for patients who fail regular statin therapy. In light of this, we now expect Vytorin/Zetia (joint venture sales of $5.2B in '07) to drop some 20%-25% this year. We are cutting our 12-month target price by $7 to $18, applying a peer-level and market P/E of 13.3X to our '08 EPS estimate. We also think SGP's $9 billion of debt and restrictive Remicade agreement with Merck make a takeover unlikely. /H. Saftlas

S&P REITERATES BUY OPINION ON SHARES OF IAC/INTERACTIVECORP

IACI; $20.49

A judge rules that IACI did not need to receive approval from minority shareholder Liberty Media (LINTA) to proceed with plans to split up into 5 publicly traded companies. We see this decision as a notable positive, eliminating a material uncertainty that has hung over IACI for months and allowing IACI to move forward with the split, which we see contributing to shareholder value. We still see IACI as undervalued at 12X our '08 EPS forecast, well below peers. We think a transaction between IACI and LINTA, involving an asset exchange, is now more likely to occur. /S. Kessler

S&P MAINTAINS HOLD OPINION ON SHARES OF CITIGROUP

C; $20.66

Citi announces it is restructuring its global business into three regional units, and also breaking out its credit-card business from its consumer banking segment. We think these moves likely stem from management's desire to gain more control over Citi's diverse operations. In particular, we believe Citi is attempting to better control lending risk, especially since it has reported much larger loan writedowns than some peers. The more structured segments may also signify that Citi may be planning to sell some of its business units. We are maintaining our 12-month target price at $26. /S. Plesser

S&P REITERATES STRONG BUY OPINION ON SHARES OF ALTRIA

MO; $22.99

We are adjusting our 12-month target price to $27 from $88 to reflect completion of the spin-off of Philip Morris International (PM) shares to Altria shareholders. We look for Altria's EPS growth to be driven by about $1 billion in expected restructuring savings over the '06 to '10 timeframe. The shares yield about 5%, based on an anticipated dividend of $1.16 per share. We are applying a 16.5X P/E multiple to our 2008 EPS estimate of $1.66 for Altria, in line with historical averages, to arrive at our target price. /E. Kwon, CFA

S&P MAINTAINS SELL OPINION ON SHARES OF LIVE NATION

LYV; $11.83

Live Nation sets terms for a 12-year pact with popular Irish rock band U2, seemingly consistent with its strategic shift to "360-degree" relationship with artists. With U2's relationship with Universal Music unaffected by this pact, we infer key elements of Live Nation's deal with U2 include touring, merchandising, licensing and an online fan club, although slightly short of the more comprehensive pact signed last year with pop singer Madonna. Still, while economics of the deal are unclear to us, we think U2's popularity likely offered it significant leverage for undisclosed terms. /T. Amobi, CPA, CFA


Best LBO Ever
LIMITED-TIME OFFER SUBSCRIBE NOW

Sponsored Financial Commentaries

Sponsored Links

Buy a link now!

 
blog comments powered by Disqus