Markets & Finance

S&P Picks and Pans: WaMu, AmerisourceBergen, Nokia, AMD, Alcoa


Analysts' opinions on stocks in the news Tuesday

From Standard & Poor's Equity ResearchS&P MAINTAINS HOLD OPINION ON SHARES OF WASHINGTON MUTUAL (WM; 11.98):

WM agrees to sell $7 billion, up from previously reported $5 billion, in equity securities to private-equity firm TPG and other investors, and is cutting its quarterly dividend to $0.01 from $0.15. WM sees a $1.1 billion first quarter loss and a $3.5 billion provision for loan losses. Though we are concerned about losses of this magnitude, we are encouraged by WM's steps to strengthen its capital position. To reflect new guidance, we are widening our first quarter loss estimate by $1.25 to a $1.57 loss, and 2008's by $1.31 to a $1.66 loss. We are keeping our target price of $14, a historically low 0.6 times book value. -K. Cole-CFA

S&P UPGRADES AMERISOURCEBERGEN SHARES TO BUY FROM HOLD, ON VALUATION (ABC; 40.02):

We expect ABC, scheduled to report March-quarter results on Wednesday, April 23, will post EPS of $0.78 vs. $0.68. We look for drug distribution operating margins to expand modestly, but with benefits of generic drug penetration and cost reductions mostly offset by sell-side pricing pressure. We are encouraged that ABC expects the sale of its underperforming Workers' Comp segment around the June-quarter. We trim our fiscal year 2008 (September) EPS estimate by $0.03 to $2.85, but keep fiscal year 2009's at $3.30, and maintain our target price at $52. Our upgrade follows a pullback in recent weeks by ABC's share price. -P. Seligman

S&P UPGRADES OPINION ON ADSS OF NOKIA TO BUY FROM SELL (NOK; 34.02):

While global growth slows, we believe Nokia's handset sales (71% of NOK's projected 2008 total sales) will remain largely unaffected, helping to drive results. We think NOK's key attractions include strong market share in emerging markets, ongoing semiconductor component pricing and manufacturing scale economies that should help drive operating margin improvement in 2008 and 2009, and low U.S. exposure. We are raising our 2008 earnings per ADS estimate by $0.44 to $2.57. We are increasing our 12-month target price by 6 to 40 to reflect changes to our DCF and relative p-e analyses. -C.VanDerElst

S&P MAINTAINS HOLD RECOMMENDATION ON SHARES OF ADVANCED MICRO DEVICES (AMD; 6.34):

AMD updates its first quarter outlook, now expecting revenue to be about $1.5 billion, a 22% increase from last year and a 15% decline from the fourth quarter. The company's new revenue projection is below our forecast of $1.65 billion, reflecting lower-than-expected sales across all of AMD's business segments. the second quarter. We await the company's full first quarter results, expected on April 17, for further detail. We are maintaining our 12-month target price of 9, on a peer-discount price/sale ratio. -A.Zino-CFA

S&P REITERATES HOLD RECOMMENDATION ON SHARES OF ALCOA (AA; 37.44):

Alcoa posts first quarter EPS of $0.44 before special items, vs. $0.77, on a 6.7% sales decline. This is way shy of our $0.68 estimate, reflecting higher-than-expected interest and tax expenses. We are cutting our full-year 2008 estimate to $2.88 from $3.05 to reflect the shortfall. Even so, we are keeping our 12-month target price of 42 based on our belief that AA's share buyback program and sale of underperforming units will support a p-e of 14.6 times that estimate. Long-term, EPS should rise on increased production from lower-cost plants and a generally higher aluminum price. -L.Larkin


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