Markets & Finance

S&P Picks and Pans: Fannie Mae, Indymac, EMC, Office Depot, Cardinal Health, Manpower


Analysts' opinions on stocks in the news Tuesday

From Standard & Poor's Equity ResearchS&P MAINTAINS HOLD OPINION ON SHARES OF FANNIE MAE (FNM; 15.74):

A change in accounting rules could result in FNM and Freddie Mac (FRE; 12.00) needing to raise capital. We believe FNM and FRE will be granted an exemption from the rule changes due to their importance in the mortgage markets. We are encouraged that FNM has already successfully raised about $6 billion in capital. However, we are concerned that FNM's rapidly declining share price may prevent the company from raising any additional capital on terms favorable to existing shareholders. We are lowering our 12-month target price by 12 to 18, a historically-low 0.8 times book value. -K. Cole, CFA

S&P REITERATES HOLD OPINION ON SHARES OF INDYMAC BANCORP (IMB; 1.04):

Shares are significantly down in premarket after IMB announces it will exit the forward mortgage business and that its regulator, the Office of Thrift Supervision, has deemed it no longer well capitalized. We believe IMB needs to raise substantial capital to offset the significant losses we see in coming quarters. Based on higher securities write-downs, we are widening our 2008 estimate to $7.02 loss from $4.33 loss, and cutting our target price to 0.50 from 1. However, we recommend holding the shares based on our belief that a capital raise is possible. -K. Cole, CFA

S&P REITERATES STRONG BUY OPINION ON SHARES OF EMC CORP. (EMC; 13.50):

Shares are 9% lower this morning, which we attribute to the departure of VMware's (VMW; 39.40) president and CEO, Diane Greene, and the immediate appointment of Paul Maritz as her replacement. VMW is 85% owned by EMC. In addition, VMW expects 2008 revenues to be modestly below previous guidance of 50% growth. We think that Maritz is a capable executive, based on his 14 years of experience with Microsoft (MSFT). We estimate that VMW's slight revenue adjustment will have a minimal impact on EMC. We are keeping our 12-month target price of 21. -R. Khalid, CFA

S&P MAINTAINS HOLD OPINION ON OFFICE DEPOT SHARES (ODP; 10.41):

ODP pre-released second quarter results, including a 10% year-over-year same-stores sales decline in its North American Retail unit and a slight decline in total company sales. We were looking for flat total company sales growth. ODP anticipates its EBIT margins to have declined 200-250 basis points in the second quarter vs. a year ago, which is in line with our forecast. Our second quarter EPS estimate is $0.18, vs. $0.38, below the Street's $0.21 estimate. ODP continues to face weakening demand in the retail market which limits top line growth. We will update our full-year EPS forecasts after final second quarter report on July 30. -M. Souers, K. Leon-CPA

S&P REITERATES BUY OPINION ON SHARES OF CARDINAL HEALTH (CAH; 51.25):

We think CAH's consolidation of its businesses into two primary operating and reporting segments will help reduce costs and improve efficiencies mainly via shared services. Healthcare Supply Chain Services combines CAH's distribution centers and nuclear pharmacies, Clinical and Medical Products comprises its manufacturing businesses, and a third segment comprises businesses that CAH is evaluating. With the consolidation, CAH is cutting about 600 positions and taking a $63 million restructuring charge. We keep our fiscal year 2008 (June) EPS estimate of $3.80 and fiscal year 2009's of $4.30 and our 70 target price. -P. Seligman

S&P DOWNGRADES OPINION ON MANPOWER SHARES TO HOLD FROM BUY (MAN; 55.55):

We believe MAN's operating performance will be aided in the coming periods by its diverse geographic footprint and a favorable forex impact. However, on the opposite side, we think growth will soon start to be limited by a less robust economic picture in western Europe, on top of slow labor markets in MAN's smaller U.S. division. We are reducing our 2008 EPS estimate by $0.20 to $5.70, and 2009's by $0.70 to $5.90. We are also cutting our 12-month target price by 24 to 59, 10 times our 2009 EPS projection, which we view as an appropriate late-cycle valuation. -M. Jaffe


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