Markets & Finance

S&P Picks and Pans: Boeing, Yahoo, Delta, Schering-Plough, Ambac, Wells Fargo


Analysts' opinions on stocks in the news Wednesday

From Standard & Poor's Equity ResearchS&P MAINTAINS BUY RECOMMENDATION ON SHARES OF BOEING (BA; 82.66):

First quarter EPS of $1.61, vs. 1.12, on a 4% sales rise, is well above our $1.23 estimate. Operating margins rose 180 basis points to 11.3% on strong improvement in commercial airplanes and in network and space. Although free cash flow, at $2 per share, was above our estimate, we see lower cash for the rest of 2008 on supplier payments. Despite 787 delays, we continue to see strong results for BA on 737-NG, 747 and 777 deliveries, as well as improved integrated defense performance. We are increasing our 2008 EPS estimate by $0.06 to $5.82 and 2009's by $0.30 to $6.80. We keep our 12-month target price at 118. - R. Tortoriello

S&P REITERATES HOLD OPINION ON SHARES OF YAHOO (YHOO; 28.54):

First quarter EPS of $0.11, vs. $0.11, is $0.01 above our forecast. Revenues excluding traffic-acquisition costs rose 14%, above our 12% projection, reflecting what we consider strong performance in the display business, in part on improved pricing. The company also sequentially reduced net headcount by 500 people. Although YHOO moderately raised the mid-point of its 2008 operating and free cash-flow outlooks, we note it cut its guidance for stock-based compensation by roughly 7%. We do not think results and outlook will cause Microsoft (MSFT; 30.25) to materially raise its buyout bid. - S.Kessler

S&P REITERATES HOLD OPINION ON SHARES OF DELTA AIRLINES (DAL; 6.80):

DAL posts first quarter loss from operations of $0.69, narrower than our $0.90 loss estimate. Comparable results are not available due to prior bankruptcy. After a write down of goodwill that DAL assumed when it came out of bankruptcy, the loss was $6.4 billion. We think the pending merger with Northwest (NWA; 7.50) will give the new DAL enough financial resources to adjust to sustained high jet fuel costs. But with oil continuing to rise, we are cutting our 2008 estimate to a $1.39 loss from $0.65 EPS, and 2009's to $0.40 EPS from $0.95 EPS. We are reducing our 12-month target price by 3 to 9. -J. Corridore

S&P MAINTAINS HOLD OPINION ON SHARES OF SCHERING-PLOUGH (SGP; 18.16):

First quarter adjusted EPS of $0.53, vs. $0.42, is $0.15 above our estimate. Sales, inclusive of the Organon BioSciences acquisition, grew 56% to $4.7 billion, slightly ahead of our estimate on continued robust sales of Remicade (up 36%), Temodar (up 20%), and Avelox (up 24%). In spite of the expected erosion in its Vytorin/Zetia cholesterol franchise because of adverse FDA panel statements and clinical data, equity income increased 6%. We continue to view Organon deal positively and think expanded pipeline holds long-term promise. We are keeping our 12-month target price at 18. -H. Saftlas, J. Loo, CFA

S&P MAINTAINS HOLD RECOMMENDATION ON SHARES OF AMBAC FINANCIAL GROUP (ABK; 6.03):

The company posts a per-share $6.93 first quarter operating loss, vs. year-ago $2.00 operating EPS, amid 13% lower premiums and a surge in loss costs. More troubling, in our view, are trends in credit enhancement production or "deal flow". Such production plunged 87% in first quarter amid weakness in all segments. We are widening our 2008 operating loss estimate to $7.43, from a $0.20 loss. Our $1.10 operating EPS estimate for 2009 assumes credit trends stabilize. We remain wary of ABK prospects and would not add to positions. Our 6 target price, cut 5 today, assumes a discount to past averages. -C. Seifert

S&P DOWNGRADES OPINION ON SHARES OF WELLS FARGO TO HOLD FROM BUY (WFC; 29.19):

After further review of WFC's first quarter results, we are lowering our 2008 EPS estimate by $0.23 to $2.32. This largely reflects an increase in our projection of WFC's loss provision. The company's reserve is now 1.55% of loans, but the ratio of reserves to non-performing loans declined from the fourth quarter. Although we have a favorable view of WFC's origination channel, its exposure to home equity loans will likely lead to annualized chargeoffs increasing from the 1.60% level in first quarter. We are reducing our target price by 2 to 32, 13.8 times the lowered 2008 EPS estimate, in line with peers. -S. Plesser


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