Markets & Finance

S&P Picks and Pans: Sun Microsystems, Microsoft, Yahoo, Viacom, Nortel, Weyerhaeuser


Analysts' opinions on stocks in the news Friday

From Standard & Poor's Equity ResearchS&P REITERATES BUY OPINION ON SHARES OF SUN MICROSYSTEMS (JAVA; 13.17):

JAVA's March-quarter loss of $0.04 vs. $0.02 EPS is worse than our $0.14 EPS estimate. Sales fell 1% from the December-quarter, worse than our view, due to seasonal weakness and soft results in government, consumer, and telecommunications markets. Gross margin narrowed on less favorable sales mix, and led to a negative operating margin, worse than our view. JAVA plans to cut 1500-2500 jobs to aid profitability. We reduce our fiscal year 2008 (June) EPS forecast by $0.28 to $0.57, and our 12-month target price by 2 to 16. However, we see restructuring efforts and new products growth aiding longer-term results. -T. Smith-CFA, C. Montevirgen

S&P REITERATES STRONG BUY OPINION ON SHARES OF MICROSOFT (MSFT; 29.40) AND HOLD OPINION ON SHARES OF YAHOO (YHOO; 26.81):

Today's WSJ includes an unconfirmed story indicating that Microsoft is "leaning toward going hostile in its pursuit" of Yahoo and implying that a higher offer is possible. However, MSFT's CEO Steve Ballmer has said MSFT will not overpay. We think MSFT could decide to walk away, and deploy some of the more than $40 billion it has bid for YHOO on other external and internal efforts to build on its Internet strategy. On balance, we think MSFT will likely announce its intention to take a slightly sweetened offer to YHOO shareholders within days. -S. Kessler, J. Yin

S&P MAINTAINS HOLD OPINION ON CLASS B SHARES OF VIACOM (VIA.B; 39.76):

Before $0.02 one-time charge, first quarter EPS of $0.44, vs. $0.34, matched our estimate and was $0.03 above Street view. We saw broad-based gains for media networks and film segments; the former on MTV ad/affiliate revs and Rock Band video games, the latter on DVD sales of Shrek 3 and Transformers. We expect a.m. update on scatter ad market, and view tonight's Iron Man premiere as crucial to near-term film outlook. We expect comment on pending launch of pay TV network, amid collapsed talks with Showtime. VIA.B continues stock buybacks, and affirms low double-digit annual EPS growth from 2008-2010. -T. Amobi - CPA, CFA

S&P REITERATES HOLD OPINION ON SHARES OF NORTEL NETWORKS (NT; 8.98):

First quarter loss of $0.28, vs. $0.23 loss, is below our $0.01 EPS estimate, mainly on numerous one-time charges. Both sales, up 11%, and gross margin, at 42%, beat our forecasts. We are encouraged by a continued improvement in operating margins, which are tracking toward near-term 6% long-term target, and by the sales traction in the enterprise division, an area we view as critical to its long-term growth. Still, we see the operating environment becoming more challenging amid a weakening macroeconomic climate, and lower our 12-month target price by 2 to 10 on revised relative analysis. -A. Bensinger

S&P LOWERS RECOMMENDATION ON SHARES OF WEYERHAEUSER TO HOLD FROM BUY (WY; 64.75):

First quarter loss per share of $0.24, vs. EPS of $0.20, is wider than our $0.10 loss estimate. Conditions in the residential real estate market remained depressed, leading to losses in WY's wood products and real estate businesses. We expect the environment in these areas to remain difficult in coming quarters, and we are reducing our 2008 EPS estimate to $0.50 from $1.40. Plans to sell the corrugated packaging business in second half for $6 billion are on schedule, and we expect significant debt reduction with the proceeds. With limited upside seen to our 12-month 72 target price, we would hold. -S. Benway-CFA


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