Markets & Finance

S&P Picks and Pans: Chemtura, Vodafone, Standard Pacific, Palm, Level 3


Analysts' opinions on stocks in the news Tuesday

From Standard & Poor's Equity ResearchS&P MAINTAINS HOLD OPINION ON SHARES OF CHEMTURA (CEM; 8.47):

According to unconfirmed reports from the Financial Times and other media, CEM is in talks to be acquired by a group of equity investors, but the price is not yet set. CEM put itself up for sale in December when directors authorized management to consider a "wide range of strategic alternatives," and we believe CEM has even been shopping itself since early 2007. CEM has struggled since mid-2005 merger of former Crompton and Great Lakes Chemical. We believe CEM has strong positions in pool chemicals and pesticides, but it has struggled in plastics additives. Our target price is $10. -R. O'Reilly-CFA

S&P MAINTAINS SELL OPINION ON ADRS OF VODAFONE (VOD; 32.55):

VOD posts fiscal year 2008 (March) revenue growth of 14%, ahead of our expectations. Growth was largely driven by Indian operations and the positive impact of euro strength on European operations; organic revenue grew 4.2%. Group EBITDA margin narrowed. The company guides for a continuation of strong revenue growth and a similar EBITDA margin decline in fiscal year 2009. In our view, the results also highlighted the ongoing challenges VOD faces across western European markets, particularly in Germany and Italy. We are maintaining our sell recommendation and 12-month target price of 31. -C. Perea

S&P REITERATES HOLD OPINION ON STANDARD PACIFIC SHARES (SPF; 2.22):

SPF announces it will receive $530 million from MatlinPatterson Global Advisors, a private equity firm, a development that we view favorably given our concerns about this homebuilder's balance sheet and liquidity risks. In exchange for cash, SPF will issue $381 million of preferred stock to MatlinPatterson, which will backstop a 50 million-share common stock offering - $152.5 million at last week's closing price of $2.22 - if there are unsold shares. MatlinPatterson will also exchange $128.5 million in debt for another preferred stock. We believe these actions should improve SPF's financial condition. -K. Leon-CPA

S&P DOWNGRADES OPINION ON PALM SHARES TO SELL FROM HOLD (PALM; 5.64):

We believe PALM is more exposed than peers to any fluctuations in its business or the economy, which has proved problematic given PALM's weak second quarter and third quarter fiscal year 2008 (May) results. Even with recent handset model launch, we believe PALM's ability to gain market share in the high-growth smartphone market will be limited by new offerings from competitors. We are lowering our sales forecasts for fiscal year 2008 and for fiscal year 2009. While we think new management will provide improvements, we expect a turnaround to take time. We trim our price/sales-based 12-month target price by 0.50 to 5.50. -T. Rosenbluth

S&P DOWNGRADES OPINION ON LEVEL 3 COMMUNICATIONS SHARES TO SELL FROM HOLD (LVLT; 3.49):

LVLT shares have risen 48% since the company reported first quarter results in late April that were a bit weaker than our forecast for EBITDA. We believe the optimism is due to an expectation of a smoother integration of recent acquisitions. We expect EBITDA, inclusive of stock options expenses and costs related to the expansion of its sales force, to rise to $889M in 2008 and $1.05 billion in 2009, the lower end of LVLT's guidance. Our 12-month target price of 3 values LVLT shares on an enterprise value/EBITDA basis using a multiple of 12, a premium to peers. We see the shares as overvalued. -T. Rosenbluth


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