Markets & Finance

S&P Picks and Pans: Apple, Yahoo, Lehman Brothers, Rite Aid, WD-40, Millennium


Analysts' opinions on stocks in the news Thursday

From Standard & Poor's Equity ResearchS&P REITERATES BUY RECOMMENDATION ON SHARES OF APPLE (AAPL; 154.49):

We project Apple will gain share in its mainstay PC markets over the coming 12 months and we believe modest costs for PC components will aid margins. We view the iPod and iPhone segments as on track for rapid growth. The iTunes music operation recently became the world's largest music retailer. We are raising our fiscal year 2008 (September) EPS estimate by $0.05 to $5.15. We are updating our p-e analysis with a higher target p-e of 34, near the middle of a 3-year range for AAPL, applied to our 12-month forward EPS estimate of $5.47. We are raising our 12-month target price to 186 from 150. -T. Smith-CFA

S&P REITERATES HOLD OPINION ON SHARES OF YAHOO (YHOO; 27.77):

Unconfirmed Wall Street Journal report says that in addition to partnering with Google (GOOG; 464.20), YHOO is pursuing possible deal with Time Warner's (TWX; 14.40) AOL as an alternative to Microsoft's (MSFT; 28.90) unsolicited bid. TWX would contribute AOL's non-dial-up operations and cash, for 20% of combined entity; YHOO would use some of the cash to repurchase stock at $30-$40 per share. MSFT is also purportedly talking with News Corp. (NWS; 19.50) about joint bid for YHOO, which we think could lead to a sweetened bid. Ultimately, we believe MSFT will acquire YHOO. -S. Kessler

S&P MAINTAINS HOLD OPINION ON SHARES OF LEHMAN BROTHERS (LEH; 40.54):

Lehman Brothers discloses in its most recent SEC filing that during February-quarter it had purchased about $1.8 billion in distressed securities from certain alternative funds for which it acts as a general partner. We believe this move adds risk to the company's balance sheet. However, we think LEH's ability to purchase distressed assets when it had no obligation to do so indicates that the company has sufficient liquidity. This deal was already reflected in February-quarter results. We are maintaining our hold opinion and 12-month target price of 47, which is in line with peer multiples. -M. Albrecht

S&P LOWERS RECOMMENDATION ON SHARES OF RITE AID TO HOLD FROM BUY (RAD; 2.55):

Rite Aid reports February-quarter loss per share of $0.08, excluding tax charges, vs. $0.01 EPS, $0.04 narrower than our estimate. Results benefitted from integration of acquired stores and increased dispense rate for wider-margin generic drugs. However, given a weaker economic environment and higher-than-expected ongoing acquisition integration costs, we are reducing our fiscal year 2009 (February) estimate from breakeven to a loss per share of $0.41. As a result, we are lowering our 12-month target price by 0.50 to 3.00 on updated comparative and enterprise value/EBITDA analyses. -J. Agnese

S&P LOWERS RECOMMENDATION ON SHARES OF WD-40 TO SELL FROM HOLD (WDFC; 30.74):

February-quarter EPS of $0.51, vs. $0.52, beats our estimate by $0.02 on timing of marketing expenses and tax rate. Sales fell by 0.5% compared with our 6% projection, with very weak U.S. sales partly offset by strong European sales. Although some of the U.S. decline may reflect timing of the Smart Straw conversion, we are concerned about increased competition. We are lowering our fiscal year 2008 (August) EPS estimate by $0.01 to $1.82 on lowered sales forecasts for the second half, and we initiate a $1.93 fiscal year 2009 EPS estimate. We reduce our p-e- and DCF-based 12-month target price by 2 to 30. -L. Braverman-CFA

S&P REITERATES HOLD RECOMMENDATION ON SHARES OF MILLENNIUM PHARMACEUTICALS (MLNM; 24.47):

MLNM agrees to be acquired by Japan's Takeda Pharmaceuticals via a cash tender offer at $25, a total of about $8.8 billion. We believe this 53% premium over last night's close make competing bids unlikely. MLNM also reports first quarter Velcade sales up 42% to $83.5 million, ahead of our $76 million estimate. Despite our view of MLNM's momentum and likely Velcade label expansion in 2008, we see the the Takeda transaction as favorable, given MLNM's reliance on Velcade growth, with a pipeline still several years from commercialization. We raise our target price by 9 to 25, matching tender offer terms. -S. Silver


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