Markets & Finance

S&P Picks and Pans: Fannie Mae, Freddie Mac, JPMorgan, eBay, Nokia, Harley Davidson, Merrill Lynch, BlackRock


Analysts' opinions on stocks in the news Thursday

From Standard & Poor's Equity ResearchS&P UPGRADES OPINION ON SHARES OF FANNIE MAE SHARES TO SELL FROM STRONG SELL (FNM) 11.10):

We expect the Treasury's GSE-related proposals to be approved, and we think Fed's opening of discount window should prevent liquidity issues near-term. However, we think the terms of the potential equity investment by the Treasury in FNM or Freddie Mac are uncertain, and expect a high level of volatility in the shares until there is more clarity. We still think any capital injection the GSEs receive will be highly dilutive and detrimental to existing shareholders. On less uncertainty, we lift our target price $3 to $7, a historically-low 0.3 times book value. -K. Cole-CFA

S&P RAISES RECOMMENDATION ON SHARES OF FREDDIE MAC TO SELL FROM STRONG SELL (FRE; 8.29):

We still find FRE shares unattractive, based on uncertainty surrounding government proposals. The terms of potential equity investment by the Treasury in FRE and Fannie Mae are unclear. We expect the proposals to be approved, but we see high volatility in the shares until there is more clarity. However, opening the Fed discount window to the GSEs should prevent short-term liquidity issues. That said, we still note that any capital injection will be highly dilutive to existing shareholders. We raise our target price by $3 to $5, a historically low 2.5 times book. -K. Cole-CFA

S&P MAINTAINS STRONG BUY RECOMMENDATION ON SHARES OF JPMORGAN CHASE (JPM; 35.94):

JPM posts Q2 operating EPS of $0.54, vs. $1.20, $0.13 below our estimate. Results are after $540 million of merger costs related to the purchase of Bear Stearns. JPM added $1.3 billion in credit reserves over charge-offs. Reserves as a percentage of loans totaled 2.57% at the end of Q2, near the top of the range of peers. JPM boosted its capitalization, with Tier 1 capital of 9.1% at the end of Q2 vs. 8.3% in Q1. Based on balance sheet strength, we believe JPM will continue to gain market share for most of its business lines. We will update after call scheduled for 8 a.m. -S. Plesser

S&P REITERATES STRONG BUY OPINION ON SHARES OF EBAY INC. (EBAY; 28.10):

Q2 EPS including amortization of intangibles of $0.39, vs. $0.30, is $0.02 above our forecast. Revenues rose 20%, below our projection of 21%, reflecting weaker sales in the marketplaces segment, amid global economic weakness and recent platform changes. We now believe a turnaround will take longer. We are maintaining our 2008 EPS estimate of $1.58, but cutting our 2009 forecast to $1.87 from $1.93. Based on revised DCF analysis, accounting for lower near-term growth, we cut our 12-month target price to $35 from $39. Even so, at current price, we see EBAY as a compelling value. -S. Kessler

S&P MAINTAINS BUY OPINION ON ADSS OF NOKIA (NOK; 25.13):

Before one-time items, NOK posts Q2 earnings per ADS of $0.65, vs. $0.52, a penny above our estimate. While handset price declines were greater than we forecast, we believe volumes held up well, particularly in Latin America, allowing NOK to outgrow the market and achieving an over-40% global market share. The big surprise to us came from the Networks segment, where sales grew 26% before currency adjustments and the segment margin widened. We see this trend of stronger Networks compensating for margin pressure in handsets persisting in the second half. We will update after morning call. -C. Van der Elst

S&P UPGRADES SHARES OF HARLEY-DAVIDSON TO HOLD FROM SELL (HOG; 38.73):

HOG reports Q2 EPS of $0.95, vs. $1.14, ahead of our $0.80 estimate, as shipments of 80,326 units, though 15.6% lower, exceeded the company's guidance. Against the backdrop of weakening U.S. economic conditions and reduced domestic dealer shipments, international sales increased 11.2%. Though we believe HOG still faces very difficult motorcycle selling conditions, we think it is bringing shipments in line with market conditions. We are raising our 2008 EPS estimate to $3.14 from $3.06 and our 12-month target price to $40 from $32 on updated relative and historical analyses. -E. Kolb

S&P KEEPS SELL RECOMMENDATION ON SHARES OF MERRILL LYNCH (MER; 29.68):

BlackRock (BLK; 201.00) said today that MER will not sell any of its 49% BLK stake, which would have required BLK board approval. We view this as a positive for MER, since we think a sale would have impaired its future earnings power. As previously noted, an unconfirmed Wall Street Journal report of a potential sale of MER's Bloomberg L.P. stake should provide enough capital to offset projected writedowns taken in Q2, in our view, making the BLK sale unnecessary. We are keeping our target price at $25 and find the shares unattractive, as we believe a number of risks remain. -M.Albrecht

S&P MAINTAINS HOLD OPINION ON SHARES OF BLACKROCK (BLK; 178.95):

Q2 adjusted earnings of $2.14, vs. $1.80, beats our $2.04 estimate. Assets under management before liquidation assignments rose slightly, client flows and performance were strong and the management fee rate was higher than we forecast. Compensation costs were elevated by strong performance and headcount growth, but other costs fell. We are encouraged by BLK's strong pipeline of commitments and growth of its Solutions business. We raise our 2008 EPS forecast by $0.01 to $8.89, and keep our 12-month target price at $200, 22.5 times our 2008 EPS projection, a premium multiple to peers. -M. Albrecht


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