Markets & Finance

S&P Picks and Pans: SanDisk, UST, Palm, Take-Two, Dell


Analysts' opinions on stocks in the news Friday

From Standard & Poor's Equity ResearchS&P RAISES RECOMMENDATIUON ON SHARES OF SANDISK CORP TO HOLD FROM SELL (SNDK; 17.06):

SNDK shares are sharply higher this morning following an unconfirmed Wall Street Journal report that Samsung is considering various tie-up options, including acquisition or alliance, with SNDK. We believe a tie-up could strengthen the positions of both in the NAND flash industry. However, we see antitrust concerns as a potential issue, since a combined company would have over 50% of the NAND market. We are raising our target price by $11 to $24 based on an enterprise value-to-sales ratio of 1.0, in line with similar M&A transactions, on our 2009 revenue projection. -R. Khalid, CFA

S&P LOWERS RECOMMENDATION ON SHARES OF UST INC TO HOLD FROM BUY, ON VALUATION (UST; 54.00):

UST is indicated to open sharply higher after an unconfirmed New York Times report that Altria (MO; 20.66) is in advanced discussions to acquire UST for more than $10 billion, or over $67 per share. We continue to like UST's leading position in smokeless tobacco, a category that we estimate will rise at a mid-single-digit rate over the next few years and we believe an offer of $67 or above would be generous at about a 8% premium to a blend of our DCF and peer multiple analyses. We are keeping our 2008 and 2009 EPS estimates of $3.69 and $3.95 but raise our target price by $8 to $70. -E. Kwon-CFA

S&P REDUCES RECOMMENDATION ON SHARES OF PALM INC TO SELL, FROM HOLD (PALM; 7.25):

Ahead of PALM's August-quarter results expected in mid-September, we modestly increase our revenue forecast by $10 million, to $322 million, but maintain our per-share loss forecast of $0.25. While we believe PALM's low-priced smartphones are gaining traction, we remain concerned about the company's results in a competitive smartphone market as the U.S. economy slows, and as we expect increased marketing efforts will weigh on its profitability. While we raise our price/sales-based 12-month target price by $1 to $6.50, we see PALM shares as overvalued. -T. Rosenbluth

S&P MAINTAINS HOLD RECOMMENDATION ON TAKE-TWO INTERACTIVE SOFTWARE (TTWO; 23.23):

TTWO posts July-quarter EPS of $0.67, vs. a loss of $0.81, ahead of our EPS estimate of $0.46. Revenues rose 110% to $434 million, $64 million above our view, led by continued success of Grand Theft Auto. Results were aided by effective cost controls and a lower-than-expected tax rate. TTWO is developing a broad product portfolio for fiscal year 2009 (October), including a new Grand Theft Auto title and more games for Wii. We raise our fiscal year 2009 EPS projection by $0.52 to $1.07. But we keep our target price of $28, based on our belief that TTWO and Electronic Arts (ERTS; 46.00) will complete a merger near that price. -J. Yin

S&P MAINTAINS HOLD RECOMMENDATION ON SHARES OF DELL INC. (DELL; 20.68):

According to unconfirmed WSJ report, DELL has approached manufacturing companies with an offer to sell its computer factories. We believe DELL has a cost disadvantage in producing notebooks because each computer requires going through two factories for assembly, instead of one for most competitors. Additionally, most of DELL's facilities are located in places like the U.S. with higher labor costs. We think if DELL is able to sell its factories at an attractive price and contract out production, it can improve operating margins and focus on expanding new-growth opportunities. -T. Smith-CFA, J.Yin


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