Markets & Finance

S&P Picks and Pans: ADM, P&G, Hewitt, Marvel Entertainment, Covidian, W&T Offshore


Analysts' opinions on stocks in the news Tuesday

From Standard & Poor's Equity ResearchS&P REITERATES BUY RECOMMENDATION ON SHARES OF ARCHER-DANIELS-MIDLAND (ADM; 26.29):

ADM posts June-quarter operating EPS of $0.57, vs. $0.54, excluding net special gains of $0.01 and $0.93, respectively. Results missed our estimate by $0.17 on increased costs. Profit from processing corn into bioproducts rose 15% on higher volumes, but ethanol prices declined. We trim our fiscal year 2009 (June) EPS forecast by $0.78 to $2.87, and fiscal year 2010 by $0.63 to $2.11. Blending our DCF and relative valuations, we are reducing our 12-month target price by $14 to $34, representing an expected enterprise value of 10.2 times our fiscal year 2009 EBITDA projection, a premium to U.S. ethanol peers. -T. Vital

S&P MAINTAINS STRONG BUY OPINION ON SHARES OF PROCTER & GAMBLE (PG; 66.71):

Excluding $0.12 tax benefit, PG posts June-quarter EPS of $0.80, vs. $0.67, $0.02 above our estimate. The upside came from sales as the company was able to offset commodity cost pressures largely through price increases and SG&A leveraging. Full fiscal year 2008 (June) EPS was $3.50, vs. $3.04. We are maintaining our fiscal year 2009 EPS estimate of $3.88, which excludes a projected $0.12 in "incremental" rather than "ongoing" restructuring costs, but includes about $0.04 from the coffee business. PG projects that the reverse Morris Trust transaction on the Folgers coffee business may be completed in the December quarter. -L. Braverman, CFA

S&P REITERATES HOLD OPINION ON SHARES OF HEWITT ASSOCIATES (HEW; 40.36):

Shares are up about 9% this morning after HEW posts June-quarter operating EPS of $0.53, vs. $0.46, well above our $0.42 estimate. We expect fiscal year 2008 (September) revenue rise of 8% on strong growth in the consulting segment. Losses in the human resources business processing outsourcing segment have sharply declined vs. a year ago. Non-GAAP operating margin should improve to about 10.5% in fiscal year 2008, but we see further gains as unlikely due to high compensation costs. On the strength of June-quarter results, we are raising our operating EPS forecast by $0.12 to $1.98, but keeping our $41 target price. -D. Cathers

S&P MAINTAINS HOLD OPINION ON SHARES OF MARVEL ENTERTAINMENT (MVL; 33.13):

MVL announces second quarter EPS of $0.59, vs. $0.34, above our $0.46 EPS estimate on a 45% increase in licensing segment sales, mostly due to in-store revenue related to Iron Man and The Incredible Hulk. Film production income of $2.2 million is below our estimate, but it only includes foreign presales. Management's full-year 2008 guidance, which now includes the films' domestic component, expected to be booked in the third quarter, is well below our estimate. As such, we are lowering our 2008 EPS projection to $1.75 from $1.88. Our 12-month target price remains $37 on updated analyses. -E. Kolb

S&P MAINTAINS BUY OPINION ON COVIDIEN SHARES (COV; 52.89):

June-quarter operating EPS of $0.72, vs. $0.64, is $0.07 above our forecast. Revenues of $2.6 billion topped our $2.5 billion estimate, reflecting better-than-expected organic growth and stronger forex tailwinds than forecast. We view the EPS upside as high quality; achieved despite a higher tax rate than expected. COV's guidance for full fiscal year 2008 (September) was not revised, due to an expected September-quarter sales slowdown and higher raw material costs. But we raise our fiscal year 2008 forecast by $0.04 to $2.60 and fiscal year 2009's by $0.15 to $3.00, and our target price by $5 to $60 on a forward p-e and price/sales in line with peers. -R. Gold

S&P UPGRADES OPINION ON SHARES OF W&T OFFSHORE TO BUY FROM HOLD, ON VALUATION (WTI; 37.87):

Q2 operating EPS, after $0.10 derivative loss, is $1.77 vs. $0.60. Before losses, EPS of $1.87 beats our view by $0.17 on 48% higher natural gas prices and lower-than-projected operating and DD&A expenses. Production of 31 Bcfe missed our 32.2 Bcfe projection on equipment delays and lowered well count. WTI plans to update its 2008 capital budget by the end of August. We still see $6.47 2008 EPS, but we raise 2009's forecast by $0.71 to $6.67 on lower costs and higher prices. On lower relative metrics, blended with DCF, we reduce our target price by $10 to $54. -M. Kay


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