Markets & Finance

S&P Picks and Pans: FedEx, Sprint Nextel, MBIA, Sovereign Bancorp, XM Satellite, Encana


Analysts' opinions on stocks in the news Monday

From Standard & Poor's Equity ResearchS&P REITERATES STRONG BUY OPINION ON SHARES OF FEDEX (FDX; 90.37):

FDX cuts May-quarter EPS guidance to $1.45-$1.50 from $1.60-$1.80 due to fuel prices and the U.S. economy. We still think FDX is well positioned to benefit from any strengthening in the U.S. economy, as logistics stocks tend to do well in the early stages of an economic recovery. While the timing of a recovery is uncertain, we think the stock price discounts much of the U.S. economic risk. We are cutting our fiscal year 2008 (May) and fiscal year 2009 EPS estimates to $5.88 and $6.38, from $6.18 and $6.65. We are keeping our 12-month target price at 107, 16.8 times our fiscal year 2009 EPS forecast, below peers and the S&P 500. -J. Corridore

S&P MAINTAINS HOLD OPINION ON SHARES OF SPRINT NEXTEL (S; 9.38):

Sprint reports first quarter EPS, before one-time items, of $0.04, vs. $0.18, $0.03 ahead of our estimate. The company lost roughly 1.1 million postpaid subscribers, slightly better than company guidance. Revenue and EBITDA both came in slightly better than our expectations. Prepaid subscriber losses and churn were worse than projected and we expect to hear more details on Sprint's call. While we believe subscriber losses will continue, we expect to see modest improvement throughout the year. Sprint also announced it will consider disposing of non-core assets. -J. Moorman, CFA

S&P MAINTAINS SELL RECOMMENDATION ON SHARES OF MBIA INC. (MBI ; 10.13):

MBI reports first quarter operating loss of $3.01, vs. EPS of $1.48, wider than our operating loss estimate of $1.80, amid an overall contraction in the company's business activity due to its credit-related woes. We are widening our 2008 operating loss forecast to $2.46 from $1.80 loss, which assumes MBI earns operating profits in the third and fourth quarters. We remain concerned that MBI may not retain its top-tier financial strength, and we would sell the shares. Our 12-month target price of 8 assumes the shares trade at 75% of Mar. 31, 2008 stated tangible book value, a premium to many peers. -C. Seifert

S&P MAINTAINS SELL OPINION ON SHARES OF SOVEREIGN BANCORP (SOV; 7.88):

Sovereign plans to raise $1.5 billion in capital through sale of common stock and subordinated notes; it has yet to announce pricing of the $1.0 billion to be raised through stock. We view negatively that the sale is public rather than a direct capital infusion by Banco Santander (STD; 21.80), as was speculated by Financial Times. We do not believe STD will increase its investment in SOV in the near future and we do not see it exercising its option, starting June 2008, to buy out SOV at $40/share. We see a lower likelihood of a buyout and are reducing our target price by 1 to 7, which is 0.5 times book value. -K. Cole-CFA

S&P MAINTAINS SELL OPINION ON SHARES OF XM SATELLITE RADIO (XMSR; 11.92):

First quarter loss per share of $0.42, vs. $0.40 loss, is $0.03 wider than our loss estimate and $0.03 narrower than Street's. We think in-line net adds of 303,000 reflected continued traction in auto OEM market (further evidenced by arrival XM-installed Toyota in dealerships nationwide), and we note gains in OEM conversion and churn. However, we think the impact of retail net losses of 51,000, its worst to date, was palpable, raising further questions about the long-term health of channel. We see investors' attention dominated by FCC's ongoing review of pending merger with Sirius (SIRI; 2.70). -T. Amobi - CPA, CFA

S&P REITERATES HOLD RECOMMENDATION ON SHARES OF ENCANA (ECA; 85.93):

Encana plans to split into two independent, publicly-traded companies: GasCo, which is expected to retain the name Encana Corp., will focus on U.S. and Canadian natural gas production; and IOCo, which will focus on development of Canadian oil sands and U.S. refinery interests. Subject to approvals, the deal is slated to close in early 2009. We expect minimal impact on ECA's employees, suppliers, business partners and stakeholders. We view the deal positively, and believe it promotes transparency between ECA's oil sands and natural gas plays, which should lead to improved market valuations. -T. Vital


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