Markets & Finance

S&P Picks and Pans: Elan, Biogen, Wachovia, GM, Nissan, Chevron, Massey Energy


Analysts' opinions on stocks in the news Friday

From Standard & Poor's Equity ResearchS&P REDUCES RECOMMENDATION ON SHARES OF ELAN TO HOLD FROM BUY (ELN; 10.93):

ELN and partner Biogen (BIIB; 52.00) report first two cases of brain infection PML since the relaunch of Tysabri in July 2006 in EU patients. Though PML is a known Tysabri risk, news surprises market and we expect will limit prescriptions. While ELN and BIIB note early intervention and treatment has stabilized the patients with PML, previously considered fatal, we think more research will be needed to reassure market. We expect to see continued usage in severe cases, since Tysabri has superior efficacy profile. But we cut target price by $21 to $9 on a sharp sharply lower sales forecast. -J. Englander, CFA

S&P LOWERS RECOMMENDATION ON SHARES OF BIOGEN IDEC TO HOLD FROM BUY (BIIB; 52.01):

BIIB and partner Elan report two new cases of brain infection PML in EU Tysabri patients. The patients were diagnosed by drug's risk minimization program and are listed as clinically stable. While PML is a well-known Tysabri risk, we expect timing of the report at the two-year anniversary of drug's relaunch will result in prescribing declines until longer-term data emerges. We forecast 40% lower Tysabri sales to $1.5 billion in 2013, reduce our 2008 and 2009 EPS estimates by $0.07 and $0.24, to $3.41 and $3.81, and cut our 12-month target price by $23 to $56. -S. Silver

S&P UPGRADES OPINION ON SHARES OF WACHOVIA TO SELL FROM STRONG SELL (WB; 18.93):

Following the departure of its CFO Tom Wurtz, WB announces the retirement of Donald Truslow, its chief risk officer. We believe the moves stem from new CEO Robert Steel's attempt to distance WB from legacy management. We think such moves, plus expense reduction and the possible sale of assets to raise capital, will give some support to WB's shares in the short term. However, we still believe that an above-25% decline in the Case Schiller Home Price Index will pressure WB shares. We are raising our target price $3 to $14, 1.1 times tangible book value, still below historical levels. -S. Plesser

S&P REITERATES HOLD OPINION ON SHARES OF GENERAL MOTORS (GM; 10.20):

Q2 adjusted loss of $11.21, vs. $2.29 EPS, is wider than our $4.14 loss estimate. North American losses were key due to supplier strike, lower volume, dramatic swing in demand from trucks to cars. GM's share of GMAC loss was $1.9 billion. Europe was profitable but seems poised to slow. Latin America and Middle East demand were among the few bright spots. Barring significant further weakening of demand, we think GM has sufficient liquidity to carry it to 2010. - E. Levy-CFA

S&P DOWNGRADES OPINION ON ADRS OF NISSAN MOTOR CO TO HOLD FROM BUY (NSANY; 14.50):

Before extraordinary items, NSANY posts June-quarter pretax earnings of yen 82.5 billion, vs. yen 151.3 billion, missing our yen 128 billion forecast, largely reflecting yen 42 billion of provisions for lower residual value on leased vehicles in the U.S. We expect new product introductions to help offset intense competition, but we see raw material costs and forex restraining results. We are cutting our FY 2009 (March) earnings per ADR estimate by $0.25 to $1.43, and our 12-month target price by $7 to $14, 10 times our FY 2009 earnings estimate, in line with historical levels. We would hold NSANY for total return potential. -E. Levy-CFA

S&P REITERATES STRONG BUY RECOMMENDATION ON SHARES OF CHEVRON CORP (CVX; 84.30):

CVX posts Q2 operating EPS of $3.03, vs. $2.27. Results missed our estimate by $0.18 on lower-than-expected refining margins. Oil & gas production declined 3.5%, in line with our expectations, on impact of higher prices on international contracts, field declines, and maintenance; we expect over 1% growth in 2008. We raise our 2008 EPS estimate by $0.77 to $13.72, 2009's by $2.16 to $16.43, 2010's by $1.75 to $13.84. Blending our DCF, NAV and relative valuations, we are trimming our target price by $6 to $128, at an expected enterprise value of 3.8 times our 2009 EBITDA estimate. -T. Vital

S&P UPGRADES OPINION ON SHARES OF MASSEY ENERGY TO BUY FROM HOLD (MEE; 78.03):

Excluding litigation charges, Q2 EPS of $1.15, vs. $0.43, exceeds our $0.63 estimate as higher pricing outweighed rising production expenses. Despite recent declines in coal spot prices, we are positive on industry fundamentals, based on our view of tightening worldwide supplies and our belief that increasing demand will lead to better contract pricing. On expectations of greater contract pricing and higher margins, we increase our 2008 EPS forecast by $1.24 to $3.84 and 2009's by $1.48 to $5.97. However, we lower our target price by $3 to $93 on lower relative peer valuations. -M. Christy-CFA


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