Markets & Finance

S&P Picks and Pans: Lehman Brothers, GM, Yahoo, Toll Brothers, Continental Airlines


Analysts' opinions on stocks in the news Tuesday

From Standard & Poor's Equity ResearchS&P MAINTAINS HOLD RECOMMENDATION ON SHARES OF LEHMAN BROTHERS (LEH; 33.83):

An unconfirmed story in the Wall Street Journal suggests LEH may raise $3-$4 billion in fresh capital through a common share offering. We think proceeds would be used to strenghten the balance sheet. The company has been focused on bringing down leverage ratios, and a share offering should help do this. While a deal would dilute current shareholdings, we think it may be necessary to offset write-downs that could hurt LEH's ability to borrow. We are cutting our target price by 9 to 38, in line with projected book value, which is at a discount to peers. -M. Albrecht

S&P REITERATES HOLD RECOMMENDATION ON SHARES OF GENERAL MOTORS (GM; 17.69):

In a move reminiscent of GM's mid-'90s dramatic shift in focus to light trucks, we think GM is now chasing the marketplace reality of moving back to smaller vehicles and is cutting production of gas-guzzling trucks in favor fuel sipping sedans and SUVs. While plant closings should generate savings, we think the mix shift will shrink profits even more, especially for the transition period. On the positive side, we see GM benefiting from global vehicle development efficiencies. With sales down 30% this year through April and $4 per gallon gas, Hummer brand could shrink or be sold. -E. Levy, CFA

S&P REITERATES HOLD OPINION ON SHARES OF YAHOO (YHOO; 26.42):

A judge unseals a 64-page class-action complaint alleging YHOO's directors failed to fulfill their fiduciary responsibilities related to Microsoft's (MSFT; 27.90) acquisition attempts. We've read it and largely agree with many of its characterizations and conclusions. We were most concerned by alleged actions taken by executives and directors that, in our view, seemed solely intended to thwart a MSFT buyout. We think YHOO's board has not fulfilled its primary charge of delivering shareholder value, and that activists will ultimately succeed in pushing for a MSFT purchase. -S. Kessler

S&P MAINTAINS BUY OPINION ON SHARES OF TOLL BROTHERS (TOL; 20.96):

TOL posts April-quarter loss of $0.59, vs. EPS of $0.22, after one-time pretax writedowns of $288 million, wider than our $0.09 loss estimate. Revenue declined 30% to $819 million, but was above our $742 million estimate, as order cancellations and lower bookings hurt TOL's sales. In addition to the slower pace of new homes booked, the average price per unit of gross contracts was $590,000 in the April-quarter, vs. $711,000 a year ago. We will update our financial forecast for fiscal year 2008 (October) after today's 2 pm conference call. We currently project a 30% sales decline in fiscal year 2008, followed by low single-digit sales rise in fiscal year 2009. -K. Leon, CPA

S&P REITERATES STRONG BUY OPINION ON SHARES OF CONTINENTAL AIRLINES (CAL; 13.89):

CAL reports that unit revenue in May is likely to have risen 6.5%-7.5%, and passenger traffic grew 1.8% on a 2.2% rise in capacity. We think these results illustrate that passenger travel demand is still strong despite recent fare increases. While we do not believe this level of unit growth can offset rising oil prices, we think fares are moving in the right direction and sharp industry capacity cuts later in the year should help ongoing rise in fares. We continue to think CAL is a long-term survivor in the U.S. airline business and best positioned among U.S network carriers. -J. Corridore


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