Markets & Finance

S&P Picks and Pans: Freddie Mac, Fannie Mae, Lehman, Anheuser-Busch, Yahoo, AT&T


Analysts' opinions on stocks in the news Monday

From Standard & Poor's Equity ResearchS&P MAINTAINS STRONG SELL RECOMMENDATION ON SHARES OF FREDDIE MAC (FRE; 7.75) AND FANNIE MAE (FNM; 10.25):

Shares are up sharply in premarket trading, as the U.S. Treasury announces it will seek approval from Congress for a temporary increase in the line of credit to FRE and FNM and for the authority to buy equity in either company, if needed. In addition, the Fed voted to give the GSEs access to its discount window. Although we view these developments as encouraging and positive for the companies' debtholders, we are deeply concerned that a potential equity investment by the Treasury would severely dilute current shareholders. -K. Cole-CFA

S&P MAINTAINS HOLD RECOMMENDATION ON SHARES OF LEHMAN BROTHERS (LEH; 14.43):

An unconfirmed story in the Wall Street Journal suggests that LEH is evaluating options to solidify its position. The firm is considering a strategic alliance with a partner to improve shareholder confidence, an asset sale, or perhaps some type of stock buyback, according to the report. The SEC has also stated it is heightening its investigations into firms and individuals accused of illegally spreading false rumors. We believe some type of strategic move is necessary to improve the market's perception of the firm. -M. Albrecht

S&P REITERATES HOLD RECOMMENDATION ON SHARES OF ANHEUSER-BUSCH COS (BUD; 66.50):

BUD agrees to be acquired by InBev (INBVF.PK) for about $52 billion, or $70/share cash, with expected close by the end of 2008, pending approvals. The combined company would be called Anheuser-Busch InBev, with 2007 pro forma sales of $34.6 billion and EBITDA of $10.7 billion, and targeting at least $1.5 billion annually in synergies by 2011. We think the acquisition price, 12.4 times 2008 enterprise value/EBITDA, is very attractive for shareholders. With likely management and distributor distraction at BUD, we believe this combination could be an opportunity for Molson Coors (TAP; 54.30) to improve market share. -E. Kwon-CFA

S&P REITERATES HOLD OPINION ON SHARES OF YAHOO INC. (YHOO; 23.57):

On Saturday, YHOO announced it rejected another acquisition offer. This time, according to YHOO, Microsoft (MSFT; 25.25) and Carl Icahn proposed Friday evening to acquire and split it up for undisclosed consideration. YHOO believed the terms were not negotiable and a response was due within 24 hours. This sounds unreasonable to us. However, YHOO implies it would accept a bid for $33 a share. We think YHOO would be fortunate to receive $31, the value of MSFT's offer disclosed on Feb. 1, but note significant and somewhat surprising premiums provided in recent S&P 500 M&A activity. -S. Kessler

S&P MAINTAINS STRONG BUY OPINION ON AT&T SHARES (T; 32.58):

AT&T's iPhone supplier reported initial data for sales of its new 3G smartphone over the weekend that we believe bodes well for the U.S. carrier. It is difficult to calculate how much of the 1 million phones were sold in the U.S. But given what we view as the long-term benefits of data revenues from the 2-year service contract, we see the news as positive for AT&T. Based on media reports and our limited weekend checks, certain AT&T stores ran out of inventory relatively early, which will likely extend demand throughout the third quarter. Our 12-month target price remains 44 based on relative analysis. -T. Rosenbluth


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