Markets & Finance

S&P Picks and Pans: Regions Financial, Lehman, Google, Alcatel-Lucent, Oil and Gas Drillers


Analysts' opinions on stocks in the news Tuesday

From Standard & Poor's Equity ResearchS&P MAINTAINS HOLD OPINION ON SHARES OF REGIONS FINANCIAL (RF; 10.47):

RF shares are up sharply in mid-morning trading after the company announces it has assumed $900 million in deposits from the failed Integrity Bank. Although the assumed deposits represent only a fraction of RF's total deposits (roughly $90 billion), we believe this action indicates that the FDIC deems RF as a solvent bank despite its large exposure to construction loans in Florida. We are raising our target price by $2 to $11, 1.02 times RF's tangible book value of $10.78, still below peers. Although RF will likely need to raise additional capital, we don't see the need as imminent. -S. Plesser

S&P MAINTAINS HOLD OPINION ON SHARES OF LEHMAN BROTHERS (LEH; 16.09):

We expect shares to open higher today after an unconfirmed report from the Associated Press in which Korea Development Bank said it is forming a consortium with private banks to acquire LEH. The report also notes that pricing discrepancies persist, but that differences between KDB and Korean regulators have narrowed. We continue to expect LEH to raise capital concurrent with August-quarter results, expected in mid-September. We believe a number of risks remain, including a possible capital raise not being completed or worse-than-expected results, and we would not add to positions. -M. Albrecht

S&P REITERATES HOLD OPINION ON SHARES OF GOOGLE INC. (GOOG; 478.68):

GOOG announces Google Chrome, a new browser. Beta release is set for today in more than 100 countries. Chrome has been designed to better handle the world of Web applications and its priorities are centered on what we are calling the "Six Ss," namely stability, speed, security, simplicity, open source, and scalability. We have not yet tested Chrome, but we had thought GOOG would eventually pursue a browser product to help protect its search market share and improve usability and functionality for its growing stable of offerings. We see this news as a modest positive for GOOG. -S. Kessler

S&P MAINTAINS SELL OPINION ON ADSS OF ALCATEL-LUCENT (ALU; 6.09):

We are positive on the appointment of Ben Verwaayen as CEO and Philippe Camus as chairman. We believe Verwaayen has an excellent track record and solid industry background and we regard as favorable that, unlike prior CEO Russo, Verwaayen speaks French, as he will be based in France. While we expect Verwaayen's arrival to help lift morale, we believe he will need to further optimize ALU's product portfolio, improve post-merger integration and continue to cut costs. Based on relative and intrinsic analyses, we are keeping our 12-month target price at $5.50. -C. Van Der Elst

S&P REITERATES POSITIVE FUNDAMENTAL OUTLOOK ON OIL & GAS DRILLING SUB-INDUSTRY:

While reports from most of the major offshore drillers are still forthcoming in the wake of Hurricane Gustav, it appears initially that the storm was less damaging than originally feared. Transocean (RIG) reported Monday afternoon that its three moored semisubmersibles all appeared to have remained anchored in position during the storm, although it would send out a spotter plane to doublecheck. We remain optimistic about drillers' prospects, based on our view of high utilization, rising dayrates, and relatively low sensitivity to crude oil prices, given their current relatively high levels. /S. Glickman


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