Markets & Finance

S&P Picks and Pans: Countrywide, Energizer, Genentech, Corning, Take-Two, Merck


Analysts' opinions on stocks in the news Tuesday

From Standard & Poor's Equity ResearchS&P MAINTAINS HOLD OPINION ON SHARES OF COUNTRYWIDE FINANCIAL (CFC; 5.85):

CFC posts first quarter loss of $1.60, vs. $0.72 EPS, significantly wider than our and consensus loss estimates on $3.05 billion in credit-related charges. Provision for credit losses was $1.53 billion, up 39% from the fourth quarter, while revenues fell 72% to $678.9 million. Shares are currently trading at a 17% discount to the buyout price offered by Banc of America (BAC; 37.70), despite recent assurances from BAC that the buyout will be completed. We are lowering our 2008 estimate to $0.55 loss from $0.59 EPS, and cutting our target price by 1 to 6 on our belief that BAC will lower the buyout price. -K. Cole, CFA

S&P RAISES RECOMMENDATION ON SHARES OF ENERGIZER HOLDINGS TO BUY FROM HOLD (ENR; 77.92):

ENR posts March-quarter operating EPS of $1.10, vs. $1.19, far below our estimate of $1.38, primarily reflecting weak U.S. battery sales. ENR thinks its U.S. battery marketshare may be up, but that sales were hit by weak consumer demand, retailer de-stocking and de-emphasis of the price-oriented segment. The company's personal products segment results were in line with our forecast. Based on March-quarter, we are reducing our fiscal year 2008 (September) EPS estimate by $0.35 to $5.45 and our 12-month target price by 10 to 93. However, after a sharp drop this morning, we find ENR shares attractive. -L. Braverman, CFA

S&P REITERATES HOLD OPINION ON SHARES OF GENENTECH (DNA; 68.52):

DNA and Biogen IDEC (BIIB; 61.66) announce that Phase II/III Rituxan systemic lupus erythematosus study fails to meet primary clinical response endpoint, or any of six secondary goals. While studies continue in lupus nephritis, with different patient population, we view today's news and recent multiple sclerosis results as significant setback to Rituxan expansion plans, which we have viewed as growth drivers, and we expect DNA to leverage $7.1 billion cash to acquire growth assets. We cut our target price by 8 to 77, 24 times our 2008 EPS view of $3.20, in line with peers on a PEG basis. -S. Silver

S&P MAINTAINS STRONG BUY OPINION ON CORNING SHARES (GLW; 26.68):

Following GLW's call to review better-than-expected first quarter results, we remain bullish on the shares. We raise our 2008 EPS estimate by $0.24 to $1.86 on higher revenue growth in the LCD display business, expanding gross margin, and lower taxes. We set our 2009 EPS estimate at $1.95, including $0.17 negative impact of unwinding of tax allowances. GLW says that customer glass inventory levels are healthy and that it expects higher volumes into 2009. We view operating income growth and the balance sheet as strong. We raise our 12-month target price by 2 to 33 on relative p-e adjustments. -T. Rosenbluth

S&P MAINTAINS HOLD RECOMMENDATION ON SHARES OF TAKE-TWO INTERACTIVE SOFTWARE (TTWO; 26.47):

TTWO launches Grand Theft Auto IV today. We expect it to be the biggest selling video game title of all time, with sales exceeding 5 million copies in the first week, reflecting the well-known franchise, large number of pre-orders, raving industry review, and publicity surrounding the game's violent and sexual content. We think strong sales of Grand Theft Auto will strengthen TTWO's negotiation position as it wards off Electronic Arts' (ERTS; 51.80) takeover offer of $25.74 per share. We continue to think a deal will be done at a price of about $28 per share. -J. Yin

S&P MAINTAINS HOLD OPINION ON MERCK SHARES (MRK; 38.23):

FDA issues a nonapprovable ruling on MRK's Cordaptive niacin-based cholesterol drug, an action that we think was largely unexpected given the drug's recent clearance in Europe. But we see limited damage, since we had not modeled major blockbuster status for this pipeline product. We also think the drug may be salvaged with new clinical data. Finally, MRK reaffirmed 2008 guidance and its goal of achieving double-digit EPS growth through 2010, supported by ongoing cost restructurings and other new products. We are keeping our target price of 45. The dividend now yields 4.0%. - H. Saftlas


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