Markets & Finance

S&P Picks and Pans: Morgan Stanley, Wachovia, WaMu, FedEx, Whirlpool


Analysts' opinions on stocks in the news Thursday

From Standard & Poor's Equity ResearchS&P MAINTAINS HOLD RECOMMENDATION ON SHARES OF MORGAN STANLEY (MS; 21.75):

An unconfirmed report in the Wall Street Journal says that MS is in talks with Wachovia Corp. (WB; 9.10) about a possible merger. Separately, an unconfirmed story from CNBC reports that MS may also be considering other merger partners and may be in talks with an outside investor to sell a minority stake, highlighting its desire to ultimately stay independent. We think all options should be on the table now and the board should be open to any outcome that preserves shareholder value. We expect a volatile day of trading, and would hold positions in MS. -M. Albrecht

S&P UPGRADES OPINION ON WACHOVIA SHARES TO HOLD FROM SELL, ON VALUATION (WB; 9.12):

WB's shares have declined roughly 50% since August, and we now believe they are fairly valued selling at roughly 75% of tangible book value. Additionally, an unconfirmed story in The New York Times reports that Morgan Stanley is considering a merger with WB. We don't believe a merger between WB and MS makes sense, given the risk level of WB's balance sheet and the possibility the company will need to raise additional capital. We are lowering our 12-month target price by $2 to $12, 0.97 times WB's tangible book value of $12.34, a discount to historical levels. -S. Plesser

S&P MAINTAINS HOLD OPINION ON SHARES OF WASHINGTON MUTUAL (WM; 2.01):

According to an unconfirmed report in the NY Times, WM started an auction to sell itself several days ago. In addition, an SEC document says that TPG Capital, a major WM investor, has dropped its anti-dilution rights. These rights were triggered if the company was sold for less than the $8.75 per share TPG paid for its investment. We view this action by TPG Capital as positive for WM shares, since this clears a significant hurdle to any sale. But we are keeping our hold recommendation due to the uncertainty surrounding any potential deal. -K. Cole-CFA

S&P REITERATES BUY OPINION ON SHARES OF FEDEX CORP. (FDX; 88.07):

August-quarter EPS of $1.23, vs. $1.58, is in line with our estimate and recently raised guidance. FDX says falling oil prices are aiding costs, but the global economy is following the U.S. into a slowdown. FDX sees international package volumes flat in the next two quarters. FDX also announced a 6.9% rate hike for U.S. packages, which will be partly offset by a reduction in the fuel surcharge. We think the surcharge cut should allow the price rise to be absorbed better than it would have been otherwise. We are keeping our fiscal year 2009 (May) EPS forecast at $5.50 and our target price at $105. -J. Corridore

S&P REDUCES RECOMMENDATION ON WHIRLPOOL SHARES TO SELL FROM HOLD (WHR; 84.07):

We have a negative view of household appliances sub-industry, and we expect WHR to show a 3%-5% sales decline in 2009. Projected appliance demand in North America is already depressed, and household durable sales in Europe point to further weakness. We believe most emerging markets, including China, may also show slowed consumer spending in next 12 months. We are keeping our 2008 EPS at $6.70, but lower 2009 to $6.90 from $7.50, well below Street's $7.86. Applying a near-peers 11 times forward p-e to our 2009 estimate, we lower our target price by $12 to $76. -K. Leon-CPA


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