Markets & Finance

S&P Picks and Pans: AMR, UPS, Boeing, Citigroup, Sealy


Analysts' opinions on stocks in the news Wednesday

From Standard & Poor's Equity ResearchS&P REITERATES HOLD OPINION ON SHARES OF AMR (AMR; 10.32):

American Airlines announces it is grounding flights today to further check whether maintenance on its MD-80 fleet has been done properly. This follows groundings last week at the company and other carriers, as the FAA is rechecking maintenance after lapses were found. We think this issue is not specific to AMR, but these repeat occurrences, along with continuing high oil prices, are likely to impact the company's bottom line. We are cutting our 2008 estimate to a loss of $0.95 from EPS of $1.50. We are also reducing our 12-month target price by 3 to 12. -J. Corridore

S&P REITERATES BUY OPINION ON SHARES OF UNITED PARCEL SERVICE (UPS; 73.31):

UPS lowers first quarter EPS guidance to $0.86-$0.87 from prior $0.94-$0.98 range, citing continuing volume weakness, mix shift and higher fuel costs. We are cutting our 2008 EPS estimate to $4.20 from $4.35, but are keeping 2009's at $5.00. We believe UPS shares, trading at 17.4 times and 14.7 times our 2008 and 2009 EPS estimates, already discount a slowing U.S. economy. We think any sign of U.S. economic strengthening is likely to propel the shares higher. We are keeping our 12-month target price at 89, 17.8 times our 2009 EPS estimate, still toward the low end of UPS's 5-year historical p-e range. -J. Corridore

S&P MAINTAINS BUY RECOMMENDATION ON SHARES OF BOEING (BA; 77.98):

BA delays the first flight and the first delivery of the 787 by about six months to the fourth quarter of 2008 and third quarter of 2009, respectively. It also reduces the number of 787 deliveries planned for 2009 from 109 to 25. We believe the delay was widely anticipated, and think the new schedule, with a built-in margin of safety, significantly reduces risk on the program. We are maintaining our EPS estimates of $5.76 for 2008 and $6.50 for 2009, and our 12-month target price of $118. With nearly 900 787s on order, we continue to believe the program will be a highly-successful for BA. -R. Tortoriello

S&P MAINTAINS HOLD OPINION ON SHARES OF CITIGROUP (C; 23.76):

An unconfirmed report in the The Wall Street Journal says Citigroup is near completing a deal to sell roughly $12 billion of leveraged loans to a group of private equity firms. According to the report, C will sell the loans for slightly less than $0.90 on the dollar, about market value, and in line with our securities markdown estimates for the first quarter. We believe a sale of the loans would not only signal that the stress in the credit markets is abating, but it also would free up room on C's balance sheet to extend new loans. We are maintaining our 12-month target price at 26. -S. Plesser

S&P MAINTAINS HOLD RECOMMENDATION ON SHARES OF SEALY (ZZ; 7.10):

Sealy reports February-quarter EPS of $0.17, vs. $0.26, besting our $0.09 loss estimate, as international sales growth partly offset a decline in domestic revenues. Gross margins narrowed to 39% from 43% in the prior-year period, given higher raw material costs for bedding. We are maintaining our fiscal year 2008 (November) estimate of a loss of $0.08 per share but raising our fiscal year 2009 EPS forecast to $0.70 from $0.50. After applying a forward p-e of 12.8, near most furniture peers, we are raising our 12-month target price by 0.50 to 9.00. -K. Leon-CPA, J. Asaeda


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