Markets & Finance

S&P Picks and Pans: Wells Fargo, Intel, St. Jude Medical, AMR, Seagate


Analysts' opinions on stocks in the news Wednesday

From Standard & Poor's Equity ResearchS&P MAINTAINS HOLD OPINION ON SHARES OF WELLS FARGO (WFC) 23.74):

WFC posts second quarter operating EPS of $0.53, vs. $0.67, $0.01 below our estimate. Results benefitted from a 20% increase in net interest income, driven by a slight increase in net interest margin coupled with double-digit asset growth. Indeed, WFC seems to be taking advantage of weaker players and signficantly growing its mortgage business. However, we believe that elevated provision levels will curb earnings growth in 2008. We are lowering our EPS forecast by $0.06 to $2.16. We are also reducing our 12-month target price by $1 to $26, a peer-premium 12 times our 2008 EPS projection. -S. Plesser

S&P REITERATES HOLD OPINION ON SHARES OF INTEL CORP (INTC; 20.71):

Adjusted second quarter EPS of $0.31, vs. $0.23, is a penny above our view. Revenues declined 2% from the first quarter, but were above our model on strong sales of chips for laptops and servers. Gross margins expanded, but were below the mid-point of guidance due to higher sales of lower-margin chips for consumer laptops. INTC sees solid demand in the third quarter, and guided for sales in line within historical seasonal trends. We raise our 2008 EPS estimate $0.02 to $1.42, but keep our 12-month target price of $24. We see growth supported by resilient sales, but limited by wider, yet uninspiring, gross margins ahead. -C. Montevirgen

S&P MAINTAINS BUY OPINION ON SHARES OF ST. JUDE MEDICAL (STJ; 47.43):

Second quarter operating EPS of $0.58, vs. $0.45, is $0.03 above our estimate. Sales grew a solid 20% to $1.14 billion; 13% ex-currency advance was about 6% better than we forecast, driven by upside in cardiac rhythm management, cardiovascular, neuro and AF. Gross margin was also better than expected. Assuming a sustained recovery in the global ICD segment, but excluding possible benefit from federal R&D tax credits, we are raising our 2008 EPS estimate by $0.12 to $2.25. Based on p-e-to-growth of 1.6, modestly above peers, applied our 2008 forecast, we are lifting our target price by $3 to $54. -R. Gold

S&P REITERATES HOLD RECOMMENDATION ON SHARES OF AMR CORP. (AMR; 4.84):

Second quarter per-share operating loss of $1.13, vs. $1.08, is narrower than our $1.88 loss projection as non-fuel costs came in better than we expected. We think cash levels, at $5.5 billion, remain adequate to fund operations and pay debt over the next year. AMR announces that additional capacity cuts are coming in '09, which we regard as a good move in the current environment. On higher expected jet fuel and our expectation of weakening demand, we are widening our 2008 and 2009 loss forecasts to $7.00 and $6.00 from $6.00 and $3.00, and cutting our 12-month target price to $6 from $10. -J. Corridore

S&P REITERATES HOLD RECOMMENDATION ON SHARES OF SEAGATE TECHNOLOGY (STX; 14.85):

STX reports June-quarter operating EPS we calculate at $0.42 vs. $1.01, in line with our estimate. We expect poor product execution, along with what we think will be above average price deflation, will hurt STX margins and net income notably in fiscal year 2009 (June). And we forecast the benefits from cost-cut initiatives will only modestly offset margin pressure. As a result, we lower our fiscal year 2009 operating EPS forecast by $0.96 to $1.60. We are cutting our target price by $6 to $18, based on a blend of relative valuation metrics, including our enterprise value to EBITDA and p-e analyses. -R. Khalid, CFA


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