Markets & Finance

S&P Picks and Pans: Dollar Tree, J.Crew, Mattel, Cisco Systems, Solarfun


Analysts' opinions on stocks in the news Wednesday

From Standard & Poor's Equity ResearchS&P MAINTAINS BUY OPINION ON SHARES OF DOLLAR TREE (DLTR; 38.27):

July-quarter EPS of $0.42, vs. $0.33, beats our $0.41 estimate on a lower tax rate. Despite sales growth in lower-margin consumables and increased diesel fuel costs, operating margin improved by 10 basis points to 27.6% on lower shrink and SG&A expense leverage from a 6.5% same-store sales gain. As we see DLTR driving healthy top-line growth with its strong value proposition, as well as effectively managing margin pressures, we think its full-year EPS guidance of $2.33-$2.43 is conservative. We are reiterating our fiscal year 2009 (January) EPS estimate of $2.50 and our 12-month target price of $46. -J. Asaeda

S&P MAINTAINS BUY RECOMMENDATION ON SHARES OF J. CREW GROUP (JCG; 26.64):

July-quarter EPS of $0.28, vs. $0.32, is short of our $0.33 estimate as e-commerce system upgrade snafus slowed direct sales to 12% rise from April-quarter's 17% and led to about 150 basis points gross margin erosion. Direct is JCG's highest-margin business and e-commerce upgrades are likely to hurt October-quarter as well. But we see this as a short-term issue that, once fixed, sets foundation for long-term growth. Full-price store traffic remains soft while outlets are still vibrant. We lower fiscal year 2009 (January) EPS estimate to $1.50 from $1.74 to reflect the miss, plus expected truncated second half sales and profits. -M. Driscoll-CFA

S&P MAINTAINS HOLD OPINION ON SHARES OF MATTEL (MAT; 19.85):

A federal jury awarded MAT $100 million in damages from rival MGA Entertainment, producer of the Bratz-related products. This comes about a month after the same jury concluded that the Bratz designer came up with the concept while working at MAT. While this figure falls well short of the $1.8 billion MAT asked for, we view it as a victory nonetheless. The larger question of whether MGA will be allowed to continue producing the Bratz line remains to be decided by the court. We are maintaining our 12-month target price of $21, based on our relative valuations. -E. Kolb

S&P REITERATES HOLD OPINION ON SHARES OF CISCO SYSTEMS (CSCO; 24.22):

We see CSCO's agreement to acquire privately held PostPath, Inc. for $215 million as fitting in with the development of CSCO's own integrated collaboration platform. While Postpath's innovative email and calendaring software should enhance the long-term capabilities of CSCO's own WebEx Connect platform, we remain concerned about weakening trends in the service provider market over the near term. We are keeping our fiscal year 2009 (July) EPS estimate of $1.57 and our 12-month target price of $26. We expect the transaction to be completed in the first quarter of fiscal year 2009. -A. Bensinger, J. McCann

S&P REITERATES HOLD RECOMMENDATION ON ADSS OF SOLARFUN POWER HOLDINGS (SOLF; 17.06):

SOLF posts second quarter earnings per ADS of $0.23, vs. $0.05, missing our $0.28 estimate. Revenues more than tripled due to aggressive expansion and improved average selling prices. We expect polysilicon costs to constrain margins for the rest of this year, but see margins benefiting in 2009 from SOLF's vertical integration strategy and secured raw material requirements. We positively view a 3-year announced supply agreement with Q-Cells. We trim our 2008 earnings forecast by $0.12 to $1.04 but raise 2009's by $0.19 to $1.55. Our target price of $19 is based on a p-e ratio near peers. -A. Zino-CFA


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