Markets & Finance

Analyst Actions: GM, Merrill Lynch


From Standard & Poor's Equity ResearchMERRILL DOWNGRADES GENERAL MOTORS TO UNDERPERFORM FROM BUY

Merrill Lynch analyst John Murphy sayd the key change to his outlook for General Motors (GM) is a much lower forecast for U.S. auto sales that is driving a higher cash burn, necessitating a much larger capital raise than the market is expecting.

Also, Murphy thinks there's potential downside in the stock below $7 and that bankruptcy is not impossible if market continues to deteriorate and significant incremental capital is not raised.

Although he believes GM has made strides in restructuring and has built a solid product pipeline, there are three recent factors that dwarf management's best efforts: greater-than-expected capital infusion is likely needed, dramatic drop in sales, and an extreme shift may render large SUVs obsolete.

He cuts his price target for GM stock to 7.

OPPENHEIMER CUTS ESTIMATES FOR MERRILL LYNCH, MAINTAINS UNDERPERFORM

Oppenheimer analyst Meredith Whitney cuts her second quarter EPS forecast for Merrill Lynch (MER) of $0.20 to $4.21 loss (vs. consensus $0.75 loss). She notes her revised estimate includes total write-downs of about $5.8 billion in the second quarter.

Whitney also widens her $0.45 2008 loss estimate to $5.37 loss (vs. consensus $1.29 loss). And she cuts $4.05 2009 EPS estimateto $2.85 EPS (vs. consensus EPS of $4.43).

She expects Merrill to exact some sort of capital-raising endeavor to coincide with its second quarter report. She notes one of the major problems facing many financials today, including Merrill, is new equity raised is merely going toward plugging holes in capital structures and is not going toward funding new growth opportunities.

She believes Merrill shares are expensive at 1.5 times her $22.10 12-month forward book value.


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