Markets & Finance

S&P Picks and Pans: Goldman Sachs, Best Buy, Adobe Systems, Vodafone, Elan


Analysts' opinions on stocks in the news Tuesday

From Standard & Poor's Equity ResearchS&P MAINTAINS BUY RECOMMENDATION ON SHARES OF GOLDMAN SACHS (GS; 182.09):

May-quarter EPS of $4.58, vs. $4.93, beat our $3.39 estimate. The equity underwriting, advice and prime brokerage results were better than expected, but credit and hedge writedowns hurt fixed income results. Noncompensation costs declined vs. the first quarter, helping margins, and the tax rate was lower than we had expected. The I-banking backlog has decreased, and fixed income markets remain challenging, but results continue to impress. We are raising our fiscal year 2008 (November) EPS estimate by $2.08 to $17.80 and upping our target price by 10 to 210, 2.0 times projected book value, a premium to peers. -M. Albrecht

S&P REITERATES STRONG BUY RECOMMENDATION ON SHARES OF BEST BUY (BBY; 45.88):

May-quarter EPS of $0.43, vs. $0.39, is $0.04 above our estimate, driven by a comp-store sales increase of 3.7%, well above our projection of a flat comp. Strength in notebook computers, flat-panel TVs, video gaming products, mobile phones and GPS devices drove the outperformance. While macro environment is extremely challenging, we think BBY benefited from weakened competition in the quarter. The company also continues to do an admirable job of catering to customer wants, in our view, resulting in additional market share gains. -M. Souers

S&P MAINTAINS BUY RECOMMENDATION ON SHARES OF ADOBE SYSTEMS (ADBE; 42.85):

May-quarter EPS of $0.44, vs. $0.33, is $0.03 above our estimate, helped by lower taxes. Sales rose 19% to $887 million, $6.5 million above our view, driven by Creative Suite 3 and favorable forex. We expect new products to drive second half fiscal year 2008 (November) and fiscal year 2009 sales. While ADBE shares rise in anticipation of such releases, we think that because of a compressed time between the anticipated launch of CS4 relative to CS3, the impact will be muted. We keep our EPS estimates at $1.70 for fiscal year 2008 and $1.90 for fiscal year 2009, and cut our target price by 2 to 49, using a blend of relative and intrinsic measures. -Z. Bokhari

S&P RAISES OPINION ON VODAFONE ADRS TO HOLD FROM SELL (VOD; 29.81):

We believe VOD's increasing exposure and benefits from emerging markets will offset the negative impact of western European regulations and competition, and help drive above-average revenue and EBITDA growth. In fiscal year 2009, we see revenue growth of 12%, but a slight margin contraction. In addition, we believe VOD's balance sheet, with a lower net debt/EBITDA ratio than peers, will help allow for increased dividends and provide flexibility for acquisitions. On revisions to our DCF analysis that reflects emerging market growth, we raise our 12-month target price by 1 to 32. -C. Perea

S&P MAINTAINS HOLD OPINION ON SHARES OF ELAN CORP (ELN; 28.59):

ELN reports preliminary Phase II data for clinical trial of Bapineuzumab for Alzheimer's disease. While the study did not demonstrate statistical significance for the primary efficacy endpoint, it did demonstrate efficacy among the Apolipoprotein E4 (ApoE4) negative subgroup, estimated to make up 40%-70% percent of Alzheimer's patients. We believe these results support continuation into Phase III studies. We continue to expect ELN to be driven by Bapineuzumab. While we are encouraged by Phase II data, we do not expect to see Phase III trial data until approximately mid-2009. -J. Englander-CFA


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