Markets & Finance

S&P Picks and Pans: AIG, Sirius Satellite Radio, Citigroup, Wal-Mart, Career Education, Fortress


Analysts' opinions on stocks in the news Thursday

From Standard & Poor's Equity ResearchS&P MAINTAINS HOLD OPINION ON SHARES OF AMERICAN INTERNATIONAL GROUP (AIG; 24.06):

After this morning's conference call, we are lowering our 2008 estimate to an operating loss of $1.40 from operating EPS of $2.22. This forecast assumes lower investment returns and ongoing claims/losses from AIG's mortgage-related units, but excludes any one-time charges. AIG is set to unveil a restructuring plan on Sept. 25. We see $4.45 2009 operating EPS. We expect AIG to refocus efforts on its core insurance units and retain its airline leasing unit. Our target price of $27 is less than 1 times estimated 2009 book, a discount to peers and historical levels. -C. Seifert

S&P MAINTAINS BUY OPINION ON SHARES OF SIRIUS SATELLITE RADIO (SIRI; 1.40):

Q2 loss per share of $0.06, vs. $0.09 loss, matches our estimate and is $0.01 narrower than Street. After pre-announced net subscriber adds of 280,000, key metrics were generally in line. In first conference call since XM merger, CEO Karmazin affirmed what we view as cautious 2009 targets for synergies, EBITDA, free cash. CFO Frear was optimistic on what we see as daunting near-term funding hurdles, which could distract from integration challenges. As expected, senior team is mostly SIRI officers. With shares down sharply in 2008, we cut our target price by $0.50 to $2 on enterprise value/sales. -T. Amobi - CPA, CFA

S&P MAINTAINS HOLD OPINION ON SHARES OF CITIGROUP (C; 19.40):

According to an unconfirmed Wall Street Journal report, Citigroup will soon reach an agreement with federal regulators to resolve allegations of wrongdoing in connection with its auction-rate securities business. The agreement could result in Citigroup buying back $5-$8 billion of auction-rate securities from its customers and paying $100 million to state regulators. Notably, this would add further strain to Citigroup's capital levels, which have come under pressure due to higher credit costs. The roughly $400 billion in non-core assets that Citigroup is looking to sell offsets some of our capital concerns. -S. Plesser

S&P KEEPS BUY OPINION ON SHARES OF WAL-MART STORES (WMT) 58.44):

WMT reports July comp store sales grew 3.0%, vs. year-ago 1.9%, below our 4.0% expectations but at midpoint of the company's 2.0%-4.0% guidance. While we are disappointed by soft sales in apparel and home categories, margin comparisons should benefit as lower inventory levels led to reduction in clearance sales. Overall traffic trends remained positive the quarter. We believe consumers will continue to trade down to WMT's low-priced supercenter offerings in an adverse economic environment. We keep our July-quarter and fiscal year 2009 (January) EPS estimates of $0.83 and $3.48, respectively. -J. Agnese, E. Kwon, CFA

S&P REITERATES SELL OPINION ON SHARES OF CAREER EDUCATION (CECO; 18.27):

Shares are off in premarket after CECO posts second quarter EPS of $0.12, vs. $0.06, both before items. While EPS is $0.05 above our forecast, we think it largely reflects much smaller losses at 12 campuses being "taught out." CECO's outlook seems more difficult than we expected, as student starts at ongoing schools fell 3%, on execution issues and the impact of tight lending markets. More surprising to us, even online starts fell slightly. We are cutting our 2008 EPS forecast by $0.05 to $0.65. 2009's by $0.15 to $0.65, and our target price by $1 to $13, a below-peers 20 times our 2009 EPS estimate. -M. Jaffe

S&P MAINTAINS HOLD RECOMMENDATION ON SHARES OF FORTRESS INVESTMENT GROUP (FIG; 10.78):

FIG posts second quarter operating EPS of $0.10, vs. $0.27, missing our $0.15 estimate. FIG had $1.6 billion in net flows, primarily to private equity and liquid hedge funds, but $15 million in performance fees are well short of the $165 million earned in second quarter 2007. Flows have totaled $1.9 billion so far in the third quarter. Operating expenses also rose due to a 24% higher headcount. We expect private equity to continue to struggle with investment marks, but hedge fund performance should improve. We are lowering our 2008 EPS estimate to $0.61 from $0.80 and our target price by $2 to $12, 19.7 times our 2008 EPS forecast, in line with peers. -M. Albrecht


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