Markets & Finance

S&P Picks and Pans: AIG, WaMu, SanDisk, Apple, Adobe Systems


Analysts' opinions on stocks in the news Wednesday

From Standard & Poor's Equity ResearchS&P REITERATES SELL RECOMMENDATION ON SHARES OF AMERICAN INTERNATIONAL GROUP (AIG; 3.75):

In an 11th-hour effort to stave off Chapter 11 filing, AIG secured an $85 billion bridge loan from the Federal Reserve. AIG reportedly has pledged all of its assets and will cede 80% of shareholders' equity to the Fed. Although we believe AIG has a number of valuable franchises, we continue to view the risk/reward for common shareholders as unattractive. Our $3 target price (cut $1) assumes the shares trade at 1 times our revised estimate of tangible book value, adjusting for the dilution from the Fed's action and our view of potential asset writedowns. -C. Seifert

S&P KEEPS HOLD RECOMMENDATION ON SHARES OF WASHINGTON MUTUAL (WM; 2.42):

An unconfirmed Associated Press report says the U.S. government has been reaching out to large banks in an effort to organize a buyout of WM. We believe regulators may be concerned that WM's recent negative publicity will lead to depositors withdrawing funds from the bank. We share these concerns and are troubled by the higher rates WM has recently offered to attract deposits. With its shares trading at historically low levels, we believe WM may be attractive to a potential suitors, based on its deposit base and extensive branch network, and we keep our hold recommendation. -K. Cole-CFA

S&P REITERATES HOLD RECOMMENDATION ON SHARES OF SANDISK CORP (SNDK; 20.73):

Shares are sharply higher this morning reflecting Samsung's proposal to acquire SNDK at $26 per share in cash, subject to approvals. After months of private discussions, SNDK rejected Samsung's offer. We believe Samsung publicly released its proposal to pressure SNDK into completing the deal. While we see potential antitrust concerns as an issue, we are raising our target price by $2 to $26 based on a ratio of enterprise value to sales of 1.1, in line with similar M&A transactions. -R. Khalid, CFA

S&P UPGRADES OPINION ON APPLE SHARES TO HOLD FROM SELL, ON VALUATION (AAPL; 139.88):

We are taking a more bullish stance on AAPL based on valuation and the chance we see for an update of its PC product line before the holiday selling season, following the updating of the iPod line Sept. 9. Also, we believe the company's lack of debt is a positive factor in a volatile stock market. We still see risks from possible moderation of consumer spending and from a trend toward narrower gross margins. Applying a slightly higher target p-e of 27 to our 12-month forward EPS estimate of $5.60, we are raising our 12-month target price to $151 from $140. -T. Smith-CFA

S&P MAINTAINS HOLD RECOMMENDATION ON SHARES OF ADOBE SYSTEMS (ADBE; 38.14):

August-quarter operating EPS of $0.43, vs. $0.41, is $0.03 above our estimate. Sales rose 4% to $887 million, $9 million above our forecast on strong Acrobat 9 and LiveCycle sales. Creative Solutions sales fell 10%, likely in anticipation of launch of CS4. ADBE did not give fiscal year 2009 (November) guidance, but it did not reiterate prior comments regarding an expected acceleration of fiscal year 2009 sales growth over fiscal year 2008. We think this prudent given market conditions. We lift our fiscal year 2008 EPS estimate by $0.05 to $1.75; fiscal year 2009's stays at $1.90. We lower our target price by $5 to $44, a 23 p-e on fiscal year 2009 forecast, on lower peer multiples. -Z. Bokhari


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