Markets & Finance

S&P Picks and Pans: Monsanto, Best Buy, National City, Expedia, Mesa Air


Analysts' opinions on stocks in the news Wednesday

From Standard & Poor's Equity ResearchS&P UPGRADES SHARES OF MONSANTO TO BUY FROM HOLD (MON; 111.20):

The company posts February-quarter EPS from ongoing operations of $1.79, vs. $0.99, two cents ahead of our estimate as large gains in corn seed and fertilizer sales more than offset a rise in soybean segment costs. While we keep our fiscal year 2008 (August) EPS estimate of $3.25, we raise fiscal year 2009's by $0.25 to $3.82 to reflect traction we see MON starting to achieve in its international operations, as well as an updated platform launch schedule. Based on our DCF and relative valuation models, which yield a target price that we keep at $130, we see the recent pullback as overdone. -K. Kirkeby, CFA

S&P REITERATES STRONG BUY RECOMMENDATION ON SHARES OF BEST BUY (BBY; 44.45):

February-quarter EPS of $1.71, vs. $1.55, is $0.05 higher than our estimate as a comp-store sales decrease of 0.9% was better than the 3.0% decline we projected. We expect continued strong execution by BBY, but are concerned that macro pressures will limit foot traffic, resulting in de-leverage of fixed expenses. As a result, we are lowering our fiscal year 2009 (February) EPS estimate to $3.34 from $3.49. We initiate fiscal year 2010 at $3.64 and trim our DCF-based target price by $2 to $58. However, we continue to think BBY offers compelling value, trading at 13.3 times our fiscal year 2009 estimate, near historical trough levels. -M. Souers

S&P UPGRADES OPINION ON SHARES OF NATIONAL CITY TO BUY FROM HOLD (NCC; 9.99):

According to unconfirmed report in the Wall Street Journal, NCC is considering a merger with Keycorp (KEY; $23.5, hold), whereby KEY would be the acquirer. We think this potential deal makes sense, given that the firms have significant overlap in their service territories, and that both are headquartered in Cleveland. Any potential merger agreement is subject to both shareholder and regulatory approvals, which could take about nine months. We are raising our 12-month target price on NCC by $2 to $14, based on a peer-equivalent 11.7 multiple on our 2008 EPS estimate of $1.20. -E. Oja

S&P EQUITY STRATEGY UPGRADES FINANCIALS SECTOR TO MARKETWEIGHT FROM UNDERWEIGHT:

Although we remain cautious on underlying fundamentals of a number of industries within the Financials sector, we believe the Fed will continue to support the banking industry via lower interest rates, creative use of the discount window, and purchase of illiquid securities. We also believe that more legislative action, if needed, including the use of federal funds to insure distressed home loans, will act to cauterize the sector from the further spread of credit woes. In our opinion, the extent of writedowns for most companies in the sector are already reflected in share prices. -Sam Stovall

S&P REITERATES HOLD RECOMMENDATION ON SHARES OF EXPEDIA (EXPE; 24.69):

Today's WSJ has an unconfirmed report describing EXPE as a potential takeover target, identifying Google (GOOG; 465.52) as a possible suitor. EXPE has risen some 13% since yesterday's open. While EXPE could be an acquisition candidate, we do not expect GOOG to buy it. Moreover, we do not think current economic and market conditions are conducive to such a transaction, especially given EXPE's notable debt. We also think the battle involving Liberty Media (LINTA; 16.68, NR) and EXPE Chairman Barry Diller, both substantial EXPE shareholders, could be spurring speculation. -S. Kessler

S&P DOWNGRADES RECOMMENDATION ON SHARES OF MESA AIR GROUP TO SELL FROM HOLD (MESA; 2.37):

Delta Air Lines (DAL; 9.14) says it plans to end its Delta Connection contract with MESA, which covers 19% of MESA's fleet. MESA plans a challenge on the grounds it has met all performance criteria. However, DAL can end the pact upon 12-months notice for any reason, so we think it will be eliminated. This could involve MESA in another legal battle. We upgraded MESA on Monday after competitor Aloha ceased business, but we view DAL as more important factor, and do not think MESA will easily place these aircraft with another carrier. We are cutting our target price by $1, to $2. -J.Corridore, M.Jaffe


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