Markets & Finance

S&P Picks and Pans: Citigroup, Wells Fargo, ImClone, Royal Bank of Scotland, AMB Property


Analysts' opinions on stocks in the news Monday

From Standard & Poor's Equity ResearchS&P MAINTAINS HOLD OPINION ON SHARES OF CITIGROUP (C; 17.27):

Citigroup continues to pursue litigation to block a merger between Wells Fargo (WFC; 35.00) and Wachovia (WB; 6.00); Citigroup claims that WFC has interfered with Citigroup's exclusivity agreement. Meanwhile, an unconfirmed report in The Wall Street Journal says that Federal Reserve officials are pushing for a compromise between Citigroup and WFC regarding the sale of WB, which could include splitting WB's branches. Although WFC's offer is more attractive for WB shareholders, we believe Citigroup's assistance to the FDIC in providing a rescue plan last weekend holds some persuasion. -S. Plesser

S&P MAINTAINS HOLD OPINION ON SHARES OF WELLS FARGO (WFC; 34.35):

WFC announces its takeover agreement with Wachovia will go forward, after a state appeals court blocked a lower court ruling that had favored rival bidder Citigroup. Meanwhile, an unconfirmed report in The Wall Street Journal says Federal Reserve officials are pushing for a compromise with Citigroup over the sale of WB. We believe Citigroup's assistance to the FDIC in providing a rescue plan holds some persuasion. Due to the possibility that the WB deal will not go through, we are lowering our target price by $5 to $36, a peer-premium 16.1 times our 2009 EPS estimate of $2.24. -S. Plesser

S&P REITERATES HOLD OPINION ON SHARES OF IMCLONE SYSTEMS (IMCL; 64.96):

IMCL enters into merger agreement with Eli Lilly (LLY; 41.00) under which LLY will initiate a tender offer for IMCL at $70 per share in cash. We expect the deal to be completed, as we view the offer as at a significant premium, based on our outlook for Erbitux and last month's $62 a share offer from Bristol-Myers Squibb (BMY; 20.00). We do not see BMY surpassing LLY's offer, and we see BMY continuing to assert claims to next-generation Erbitux, currently in mid-stage development. We are raising our target price by $5 to $70, in line with the terms of the LLY offer. -S. Silver

S&P DOWNGRADES OPINION ON ADSS OF ROYAL BANK OF SCOTLAND TO SELL FROM BUY (RBS; 3.30):

We believe RBS is systemically important to the U.K. economy. In current market circumstances, however, we think RBS's capital ratios will need to rise further to re-establish confidence, and this solution is likely to be dilutive. At yearend 2008, we estimate RBS's tangible equity will be about $3 per ADS, close to the current ADS price. But any private sector or government initiative to strengthen the capital base is likely to reduce net assets per ADS, and we are lowering our target price from $7 to $2, roughly 0.7 times our tangible equity estimate, below historical average. -D. Chambers

S&P DOWNGRADES SHARES OF AMB PROPERTY TO HOLD FROM BUY (AMB; 34.27):

After guidance from other industrial REITS that their funds from operations (FFO) will be hurt by a slowdown in development activity, we think AMB, which has sizable development activity, will also be adversely affected. We are lowering our 2008 FFO per share estimate to $3.59 from $3.97 and 2009's to $3.61 from $4.20. We still believe AMB's core rental business is sound, but it, too, may be hurt by economic slowdown. We don't see a pickup in development activity over the next 12-18 months, and we are cutting our target price to $32 from $54, driven by our revised price-to-FFO analysis. -R. McMillan


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