Markets & Finance

S&P Picks and Pans: GE, Cisco Systems, Genentech, National City, Bed Bath & Beyond


Analysts' opinions on stocks in the news Friday

From Standard & Poor's Equity ResearchS&P MAINTAINS BUY OPINION ON SHARES OF GENERAL ELECTRIC (GE; 32.52):

GE's first quarter EPS of $0.44, vs. $0.48, was $0.04 below our estimate. Earnings suffered from turmoil in financial markets, lack of progress in healthcare, and weakness in U.S. industrial. Positives we see in GE at this point are historically low valuation multiples, very strong cash flow generation and balance sheet, and continued high infrastructure growth. We are lowering our 2008 EPS estimate by $0.22 to $2.21, and 2009's by $0.20 to $2.50. We are also reducing our 12-month target price by 4, to 38. With upside to our target price, we recommend purchase of the stock. -R. Tortoriello

S&P DOWNGRADES OPINION ON SHARES OF CISCO SYSTEMS TO HOLD FROM BUY (CSCO; 23.69): Recent data points from peers indicate a tightening IT spending market, with customers delaying order purchases. While we see CSCO benefiting from its well-balanced portfolio, experienced management, and strong balance sheet, we believe near-term revenue could be negatively impacted by an elongated sales cycle. We are lowering our fiscal year 2008 (July) EPS estimate by $0.07 to $1.36. Based on revised relative analysis to reflect a more difficult macroeconomic environment, we are reducing our 12-month target price by 1 to 26. -A. Bensinger

S&P REITERATES HOLD OPINION ON SHARES OF GENENTECH (DNA; 76.56):

First quarter EPS of $0.77, vs $0.68, beats our estimate by a penny, as higher royalties boosted 8% higher U.S. product sales that were 2% below our forecast. Sales of Avastin and Rituxan rose 13%, while Lucentis sales fell 6%. We see Avastin breast cancer sales uptake amid marketing constraints and Rituxan data for new indications as key 2008 drivers. With $800 million in free cash flow in first quarter, and $7.1 billion cash, we see DNA as well positioned to invest in growth. We trim our 2008 and 2009 EPS estimates by $0.05 and $0.15 to $3.20 and $3.64, and keep our 12-month target price at 85. -S. Silver

S&P MAINTAINS BUY RECOMMENDATION ON SHARES OF NATIONAL CITY (NCC; 8.80):

An unconfirmed report in the Wall Street Journal says the Bank of Nova Scotia has expressed interest in purchasing all or part of NCC. WSJ has also said KeyCorp (KEY; 23.70) and Fifth Third (FITB; 21.22) may have indicated similar interest in NCC. We think reports of such attention on the part of three banks should provide a level of support to NCC's stock price. We maintain our favorable view of its shares, but trim our target price by 2, to 12, a discount-to-peers 10 p-e multiple on our 2008 EPS estimate. -E. Oja

S&P REITERATES BUY RECOMMENDATION ON SHARES OF BED BATH & BEYOND (BBBY; 29.67):

An unconfirmed report in the Wall Street Journal expects privately-held home furnishings retailer Linens 'n Things, BBBY's primary competitor, to file for bankruptcy protection by next Tuesday. We think this would have negative near-term effects on earnings for BBBY, as a liquidation of assets at Linens would likely result in weaker sales and gross margins for Bed Bath in fiscal year 2009 (February). However, the effects should be markedly positive in the long term, with a greatly strengthened competitive position for BBBY likely resulting in better pricing and gross margin improvement. -M. Souers


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