Markets & Finance

S&P Picks and Pans: Texas Instruments, UAL, Citigroup, UnitedHealth, AK Steel, AT&T


Analysts' opinions on stocks in the news Tuesday

From Standard & Poor's Equity ResearchS&P REITERATES HOLD OPINION ON SHARES OF TEXAS INSTRUMENTS (TXN; 30.59):

First quarter EPS of $0.49, vs. $0.35, is above our $0.43 estimate due to lower-than-expected taxes. Revenues fell 8% from the fourth quarter, owing to weak sales to the wireless market. Analog chip sales were also soft. Gross and operating margins narrowed on lower sales and higher support and sales expenses, respectively. We still expect market share loss for wireless DSP, but believe share gains for analog business will help balance results in the long-run. We raise our 2008 EPS estimate $0.06 to $1.99 on first quarrer results, but we keep our 12-month target price of $36 on slightly reduced relative valuation. -C. Montevirgen

S&P REITERATES HOLD OPINION ON SHARES OF UAL CORP (UAUA; 13.82):

Shares are off about 35% today after UAUA reports first quarter loss of $4.45, vs. $1.32, wider than our $3.00 loss estimate. UAUA is making sharp cuts to capacity and is raising fares and fees wherever possible. However, we don't believe it will be able to offset rising jet fuel costs, which we think may rise by over $1.5 billion in 2008. We are widening our 2008 estimate to a $6.10 loss from $2.00 loss, and cut 2009's to a $2.00 loss from $0.25 EPS. We are lowering our 12-month target price to 18 from 25, an enterprise value-to-EBITDA multiple of 8 times our 2009 EBITDAR estimate, above peers. -J. Corridore

S&P MAINTAINS HOLD RECOMMENDATION ON SHARES OF CITIGROUP (C; 24.72):

Citigroup declares a regular quarterly dividend of $0.32, alleviating concerns, at least for the moment, that it may have to cut it amid heavy securities writedowns. Instead, C plans to raise $6 billion via the sale of preferred securities with a dividend yield of 8.4%. We note that C finished the first quarter with 7.7% of Tier 1 capital, down from 8.3% last year. We believe that securities writedowns will continue through 2008, albeit at lower levels than the first quarter. Based on C's risk-oriented balance sheet, we are not fully confident that C's current dividend is secure. -S. Plesser

S&P REDUCES RECOMMENDATION ON SHARES OF AK STEEL HOLDING TO SELL FROM HOLD (AKS; 65.81):

Our downgrade is based on valuation. AKS posts first quarter EPS of $0.90, vs. $0.56, on a 4.2% sales gain, exceeding our $0.82 estimate. On a more optimistic outlook for pricing, we raise our 2008 estimate to $4.18 from $3.70, and on the revised estimate, we increase our p-e-based 12-month target price to 60 from 52. But while we continue to have a favorable long-term view of AKS, we believe that the shares are overvalued on a relative basis to its peers, currently selling at 16 times our new 2008 estimate. On that basis, we lower our recommendation. -L. Larkin

S&P MAINTAINS HOLD RECOMMENDATION ON SHARES OF UNITEDHEALTH GROUP (UNH; 37.81):

First quarter operating EPS of $0.78, vs. $0.74, is $0.01 below our estimate. Companywide revenue grew 6.5% to $20.3 billion, aided by acquisitions and strong growth in the Medicaid and services units. But operating EPS grew 5.4%, less than we expected, partly hurt by high flu costs, higher SG&A cost ratio, lower interest income and unfavorable revenue mix in two service units. We also see UNH impacted by intensified competition, as reflected by commercial premium yields below its expected medical cost trends and by organic commercial member declines. We will update after the 9 a.m. conference call. -P. Seligman

S&P MAINTAINS STRONG BUY OPINION ON AT&T SHARES (T; 37.59):

Before one-time items, AT&T posts first quarter EPS of $0.74, vs. $0.65, a penny below our estimate due to fewer shares repurchased. Revenues exceeded our forecast, with wireless revenue and customer growth, broadband gains and encouraging enterprise operations offsetting wireline voice pressure. Operating income matched our projection, though the margin was slightly narrower on higher wireline costs. AT&T's capex, higher than year-ago period, is trending as we expected. Following first quarter results, we are bullish and see limited economic impact on AT&T to date. We will update following its morning call. -T. Rosenbluth


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