Markets & Finance

S&P Picks and Pans: Fannie Mae, McDonald's, Beazer Homes, MBIA, Sherwin-Williams


Analysts' opinions on stocks in the news Friday

From Standard & Poor's Equity ResearchS&P RAISES RECOMMENDATION ON SHARES OF FANNIE MAE TO HOLD FROM SELL (FNM; 9.12):

Our upgrade is based on a combination of our positive view of FNM's capital management efforts, and a share price decline of roughly 25% over the past few days. With $9.4 billion of capital in excess of requirements, we believe FNM can absorb losses for at least the next few quarters, giving it time to potentially raise added capital from private investors, which we would view as positive. On higher second quarter losses, we are widening our 2008 loss estimate by $1.05 to $7.55. Even so, we raise our target price by $3 to $10, roughly 0.5 times book value and historically low. -K. Cole-CFA

S&P REITERATES HOLD SHARES OF MCDONALD'S CORP. (MCD; 64.93):

MCD shares are up 4% today as the company reports an 8% increase in comparable sales for July. U.S. comps rose a robust 6.7%. In addition to price increases for its premium menu items and increased breakfast and beverage item volumes, sales benefitted from market share gains at the expense of both quick service chains, such as Wendy's International (WEN; 23.00), and full service chains, in our view. However, we also think mix changes were negative as customers increased value menu purchases, where MCD acknowledges rising costs have pressured margins. We maintain our $66 target price. -M. Basham

S&P MAINTAINS HOLD RECOMMENDATION ON SHARES OF BEAZER HOMES (BZH; 6.42):

BZH posts June-quarter loss per share of $2.85, vs. loss of 3.09, including asset impairments of $118 million, narrower than our estimate. Sales declined 40% with high cancellation rates and lower net orders. With backlog contract value at $668 million, vs. $1.7 billion a year ago, we forecast a 48% sales decline for fiscal year 2008 (September) and a 15% drop in fiscal year 2009. We widening our loss estimate for fiscal year 2008 to $15.00 from $13.50 and fiscal year 2009's to $7.50 from 3.00. Despite high operating losses, we think BZH has enough liquidity to meet its payments. Using 0.30 times price/book, we raise our target price to $6.50 from $6. -K. Leon-CPA

S&P MAINTAINS HOLD RECOMMENDATION ON SHARES OF MBIA INC. (MBI; 8.95):

MBI reports $0.96, vs. $1.57, second quarter operating EPS, better than we expected, largely reflecting the timing of claims payments. Operating results (which exclude the impact of mark-to-market gains/losses) reflect 26% higher earned premiums and 22% lower investment income. However, first half written premiums, the "pipeline" for future revenues, were off 43%. We are narrowing our 2008 operating loss estimate to $0.57 per share from a loss of $2.46. Our $9 target price assumes the shares continue to trade at a discount to book value amid the uncertainty over MBI's long term prospects. -C. Seifert

S&P DOWNGRADES OPINION ON SHARES OF SHERWIN-WILLIAMS TO HOLD FROM BUY (SHW; 56.58):

Following a 25% rise in price within the past month, shares of SHW are approaching our $60 target price. While recent decline in oil should help ease raw material cost pressures somewhat, we expect further deterioration in the housing market. We are keeping our 2008 operating EPS estimate at $4.09 but are lowering 2009's to $4.35 from $4.45. We continue to favor SHW's strong generation of free cash flow and international exposure. We also note decreased litigation risk following ruling by the Rhode Island Supreme Court. We would hold SHW, trading at about 13 times our 2009 EPS forecast. -M. Souers


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