Markets & Finance

S&P Picks and Pans: Freddie, Abbott, JetBlue, ING


Analyst opinions on stocks making headlines in Thursday's market

From Standard & Poor's Equity ResearchS&P LOWERS OPINION ON FREDDIE MAC TO SELL FROM HOLD

FRE; $14.90

We have increased concerns about FRE's capital

situation. In June, it announced plans to raise about $5.5B, yet there has been no word on when this will occur. We believe FRE will face a more difficult funding environment in coming months than just a few months ago. Fannie Mae (FNM) successfully raised about $6B shortly after announcing its intention to do so in June. On higher securities losses, we are widening our FRE '08 loss per share estimate by $1.40 to $2.49. On our increased concerns, we cut our target price

by $16 to $13, a historically low 0.7X book value. /K. Cole, CFA

S&P REITERATES BUY OPINION ON SHARES OF ABBOTT LABORATORIES

ABT; $54.65

FDA approves Xience drug-coated stent, as we expected. We think Xience, which has shown superiority over the Taxus stent from Boston Scientific (BSX) , should capture some 25% of an estimated $2B U.S. market. BSX is also launching its Xience-like Promus stent, with ABT to receive 40% of Promus sales. Given projected growth opportunities in drugs and interventional cardiology, we think ABT deserves a 1.3X premium to peer big pharma P/Es. We keep our target price of $63, which applies a P/E of 17.4X to our '09 EPS estimate of $3.62, raised today by $0.02. /H. Saftlas

S&P REITERATES HOLD OPINION ON SHARES OF JETBLUE AIRWAYS

JBLU; $3.40

With oil prices continuing to spike higher, we have widened our '08 loss estimate to $0.50 from a loss $0.05, and '09's to a loss of $0.25 from $0.20 EPS. JBLU has moved to slow growth to preserve cash, and we think ongoing cash burn amid rising jet fuel could limit JBLU's ability to benefit from falling domestic capacity among competitors. We are cutting our 12-month target price by $2, to $4, valuing the shares at an above-peers 8X ratio of enterprise-value-to-EBITDAR (EBITDA plus aircraft rent). /J. Corridore

S&P MAINTAINS BUY OPINION ON ADSS OF ING GROEP

ING; $31.33

We lower our DCF-based target price for ING by $5 to $40 on a rise in our cost-of-capital assumption to 12.0% from 10.8%, and lower forecast margins on US life sales. We raise our '08 estimate for direct-to-equity revaluation charges to EUR7.0B from EUR5.125B on weak equity and mortgage-backed-securities markets, and the impact on ING's Alt-A portfolio. We reduce pretax profit forecast to EUR8.7B from EUR9.1B to allow for lower investment gains. But we still see ING among best positioned European insurers in growth markets of Asia, Central and Eastern Europe, and Latin America. /T. Silverman

S&P RAISES RECOMMENDATION ON SHARES OF GEORGIA GULF TO HOLD FROM SELL

GGC; $2.82

The stock is down 40% over the past month, we believe a reflection of concerns regarding the challenging housing-related markets and rising energy costs for vinyl products, as well as no disclosure of any possible asset sales, and a notice of default received in early June from a private investment firm that holds 25% of the company's 7-1/8% notes. A court date of July 21, 2008 is set for the claim. GGC's net debt-to-capital ratio was 93% at the end of March. We are cutting our target price by $0.50 to $3.50, or 8X our EBITDA estimate for '08. /R. O'Reilly, CFA

S&P MAINTAINS HOLD RECOMMENDATION ON SHARES OF ACME PACKET

APKT; $7.78

APKT guides for Q2 sales of $24.5M-$25.5M with EPS at $0.02-$0.04, below our $34M and $0.08 estimates, hurt by product order deferrals as well as revenue recognition issues. We believe the difficult macroeconomic environment is causing customers to be overly cautious with their spending decisions and to delay purchasing orders. While disappointing, we view the weakness as a temporary issue and believe these pushed-out orders will close during the second half. We are lowering our '08 EPS forecast by $0.12 to $0.20, and on revised relative analysis, our target price by $4 to $6. /A. Bensinger

S&P MAINTAINS HOLD OPINION ON METROPCS COMMUNICATIONS SHARES

PCS; $17.18

PCS pre-announced Q2 net subscriber additions of 184,000, below our 300,000 forecast, due to weaker-than-expected gross additions. The seasonally slow period was exacerbated by what PCS cited as a challenging economic environment and what we view as increased competition for prepaid wireless services. We believe PCS prospects will be driven in part by new market launches in major cities, including the initiation of service offerings in Philadelphia this week. We expect PCS to report full Q2 results in August. /J. Moorman, CFA, T. Rosenbluth


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