Markets & Finance

S&P Picks and Pans: AIG, JPMorgan, AMD, Lehman, LDK Solar, American Axle


Analysts' opinions on stocks in the news Monday

From Standard & Poor's Equity ResearchS&P KEEPS HOLD RECOMMENDATION ON SHARES OF AMERICAN INTERNATIONAL GROUP (AIG; 18.78):

According to Bloomberg reports, a rating agency may downgrade AIG's financial strength rating. Our tempered stance on the shares reflects our view that AIG's outsized exposure to mortgages increases the risk of actions like this. We acknowledge the shares' discounted valuation on a price/tangible book basis, but we would not add to positions. We expect AIG to incur third quarter restructuring charges, and we await further quantification and direction from management. We are cutting our target price by $4 to $23; about 0.9 times estimated 2009 tangible book value, a discount to peers. -M. Albrecht, C. Seifert

S&P KEEPS STRONG BUY RECOMMENDATION ON SHARES OF JP MORGAN CHASE (JPM; 36.60):

JPM said in an SEC filing today that it holds about $1.2 billion par value of Fannie Mae (FNM; 5.40) and Freddie Mac (FRE; 3.30) perpetual preferred shares. The stock is held for investment and is marked to market through the income statement. Based on current market values, JPM estimates the holdings have declined in value by about $600 million thus far in the third quarter. Though the end-of-quarter write-down is uncertain, we are trimming our full-year 2008 EPS estimate by $0.09 to $2.35 to account for the exposure. We believe JPM's balance sheet remains on better footing than peers'. -S. Plesser, M. Albrecht

S&P DOWNGRADES OPINION ON SHARES OF ADVANCED MICRO DEVICES TO SELL FROM HOLD (AMD; 5.99):

AMD shares are higher after an announcement that Broadcom (BRCM; 26.20) signed an agreement to buy AMD's digital TV business for $192.8 million in cash, pending approvals. The deal, expected to close in the fourth quarter, includes the transition of 530 employees that support the digital TV business. We think the proposed deal will provide needed cash and reduce operating expenses. Separately, though we see increasing sales of new chips helping margins, we think losses will continue to weigh on the stock. We are keeping our 12-month target price of $5.50, but cutting our recommendation on valuation. -C. Montevirgen

S&P MAINTAINS HOLD OPINION ON SHARES OF LEHMAN BROTHERS (LEH; 14.41):

An unconfirmed report in the Financial Times notes that Korean regulators are urging Korea Development Bank to be cautious in its approach toward buying a foreign financial institution, noting that it might not be proper for the government-owned bank to lead the role in cross-border consolidation. Separately, an unconfirmed report from The Guardian (U.K.) suggests that internal unrest may lead to LEH chairman and CEO Richard Fuld relinquishing executive duties this year. We expect further struggles may lead to capital raises and potential management shake-ups. -M. Albrecht

S&P REITERATES HOLD RECOMMENDATION ON ADSS OF LDK SOLAR (LDK; 45.82):

LDK announces its preliminary 2009 sales outlook of $2.8-$3.0 billion and sees wafer shipments of 1.45-1.55 GW. This outlook is in line with our projection for 2009 sales of $2.83 billion and is above the Street. LDK plans to achieve annualized wafer capacity of 1.2 GW by yearend, 2.2 GW by end of 2009, and 3.2 GW by end of 2010. While LDK aims to become the lowest-cost solar wafer producer through economies of scale, we think its success in 2009 will depend on its ability to produce polysilicon. We view LDK's growth opportunities positively, but we see high risk associated with execution. -A. Zino-CFA

S&P REITERATES HOLD OPINION ON SHARES OF AMERICAN AXLE (AXL; 5.24):

As expected, AXL cuts its dividend payment sharply. We are setting our 2009 estimate at $0.91 EPS and widening our adjusted 2008 estimate by $1.14 to a loss of $2.31, after the impact of an employee strike in the first half. We think AXL will see cost savings from union agreement in 2009, but should also face headwinds from weak automotive demand and a swift industry shift from the pickups and SUVs that it counts on. Economic weakness, dramatic market shifts and restructuring reduce near-term visibility. Based on historical p-e analyses, we are cutting our target price to $7.50. -E. Levy-CFA


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