Markets & Finance

S&P Picks and Pans: Amazon.com, Ryland Group, Qualcomm, Sallie Mae


Analysts' opinions on stocks in the news Thursday

From Standard & Poor's Equity ResearchS&P REITERATES HOLD RECOMMENDATION ON SHARES OF AMAZON.COM (AMZN; 70.54):

Following AMZN's conference call, we are lowering our 2008 and 2009 operating EPS estimates to $1.51 and $2.10, from $1.53 and $2.12, respectively, on expected gross margin contraction caused by strength in the international segment and a mix shift. We note AMZN's seemingly recession-proof business model and we expect meaningful gains in market share over the next decade, as consumers worldwide continue to migrate and shop online. However, we think shares are fairly valued, trading at about 33 times our 2009 EPS projection. We are keeping our DCF-based target price at $82. -M. Souers

S&P DOWNGRADES RECOMMENDATION ON RYLAND GROUP SHARES TO SELL FROM HOLD (RYL) 26.50):

RYL posts Q2 loss of $5.70, vs. loss of $1.25, after $124 million in aggregate asset impairment charges, wider than our $0.44 loss estimate. We were surprised by the size of the Q2 write-off compared to Q1's $27 million charge, which may suggest that the housing market in RYL's markets remain depressed. Q2's backlog units did grow 6.2% year-over-year, but backlog values dropped 35% and new orders dropped 19% in Q2. We are widening our 2008 loss forecast to $7.11 from a $1.40 loss and keeping 2009's at $0.25 EPS. Applying price-to-book of 1, we're lowering our target price to $21 from $27. -K. Leon, CPA

S&P MAINTAINS HOLD OPINION ON QUALCOMM SHARES (QCOM; 44.82):

We expect QCOM shares to open higher today, as in addition to posting in-line June-quarter results, the company ended its dispute with Nokia (NOK; 26.70), which signed a 15-year royalty agreement to license QCOM patents. In addition to the revenue benefit we expect from the contract, we believe QCOM will be aided by reduced legal costs that, in our view, have weighed down profitability. Q3 EPS of $0.45, vs. $0.47, matches our estimate following a recent positive pre-announcement. Revenues were higher but investment income was lower. We will update following QCOM's morning call. -T. Rosenbluth

S&P MAINTAINS HOLD OPINION ON SHARES OF SALLIE MAE (SLM; 19.09):

SLM posts Q2 operating EPS of $0.27, vs. $0.43, $0.09 lower than our estimate on restructuring-related charges. Student loan originations fell about 8% year-over-year to $3.3 billion due to a lack of reasonably priced funding. Net interest income did increase sequentially by $120 million, primarily due to an improvement in the funding environment. We expect that recently passed legislation allowing the government to help fund the student loan market will lead to a further decline in funding costs in the second half of 2008. We will update after the 8 a.m. conference call. -K. Cole, CFA


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