Markets & Finance

S&P Picks and Pans: AIG, Lehman, Republic Services, Allied Waste, Teva, Treehouse Foods, Greenfield Online


Analysts' opinions on stocks in the news Monday

From Standard & Poor's Equity ResearchS&P MAINTAINS HOLD RECOMMENDATION ON SHARES OF AMERICAN INTERNATIONAL GROUP (AIG; 34.18):

We applaud the decision by AIG's board to replace CEO Martin Sullivan with Robert Willumstad, AIG's Chairman. We believe Willumstad's broader reach within financial services (as a former Citigroup executive) will provide AIG with the leadership it needs. Our hold recommendation reflects our view that still unresolved issues related to AIG's mortgage exposure and accounting for credit default swaps may limit the shares' near term upside. Our 38 12-month target price assumes the shares remain discounted to historical averages on p-e and price/book metrics. -C. Seifert

S&P MAINTAINS HOLD RECOMMENDATION ON SHARES OF LEHMAN BROTHERS (LEH; 25.81):

LEH posts May-quarter loss of $5.14, vs. EPS of $2.21, in line with preliminary results. Losses stemmed from outsized write-downs of fixed income assets. We are encouraged by moves to reduce leverage and preserve liquidity, but LEH's capital raise was costly to shareholders. We think confidence in the firm is of paramount importance right now, and new management can hopefully restore investor faith in this company. We are keeping our fiscal year 2008 (November) estimate at a loss of $2.60, and our 12-month target price at 27, a discount to LEH's book value and the multiples of peers. -M. Albrecht

S&P DOWNGRADES SHARES OF REPUBLIC SERVICES (RSG; 32.11) AND ALLIED WASTE (AW; 14.18) TO HOLD FROM BUY:

RSG proposes to acquire larger waste hauler Allied Waste Industries for about $6.3 billion, or 0.45 RSG share for every AW share. Combined revenues of $9.3 billion for No. 2 (AW) and No. 3 ranked North American waste companies would boost market share to 17%, vs. 24% for Waste Management (WMI; 38.50) . In our view, the merger would add synergies to RSG; with the exception of RSG's presence in Las Vegas, most markets overlap. Also, we think integration problems could happen, evidenced by large deals in the group in the late '90s. We are keeping our 12-month target price of 36 for RSG and 15 for AW. -S. Scharf

S&P UPGRADES OPINION ON SHARES OF TREEHOUSE FOODS TO STRONG BUY FROM HOLD (THS; 25.19):

We look for price-sensitive consumers to increasingly shift toward lower-cost food products, benefiting private-label producer THS. We expect further input cost pressure for THS, but we expect pricing and productivity gains to provide some profit-margin support. This includes price hikes at recently acquired E.D. Smith business. We are raising our 12-month target price to 31 from 27, an about 20 p-e on our estimate of 2008 EPS (before some special items) of $1.54, a modest premium to what we expect for other packaged food stocks. For 2009, we forecast $1.70 EPS. -T. Graves-CFA

S&P REITERATES STRONG BUY OPINION ON ADRS OF TEVA PHARMACEUTICAL INDUSTRIES (TEVA; 43.99):

TEVA announces that, based on a Phase III clinical trial, the currently marketed 1 mg tablets of Azilect could become the first Parkinson's disease drug with the indication for slowing the progress of the disease. The tablets met all three primary end points of the trial, as well as the secondary and additional end points, all with statistical significance. Assuming FDA and European regulatory approvals for this indication, we think Azilect's in-market sales could be more than double the $315 million we project for 2012 vs. the $120 million it achieved in 2007. -P. Seligman

S&P DOWNGRADES SHARES OF GREENFIELD ONLINE TO HOLD FROM BUY (SRVY; 13.28):

SRVY accepts a proposed offer to be acquired by Quadrangle Group for $15.50 in cash, amounting to a 17% premium to the stock's last closing price. Quadrangle is an investment firm focused on the media and communications areas. We believe this deal is positive for SRVY shareholders and expect the transaction to be completed in the fall of 2008. Accordingly, we are raising our 12-month target price to 15.50 from 15, and with the stock higher in pre-market trading based on the cash offer, we now see the shares as fully valued. -S. Kessler


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