Markets & Finance

S&P Picks and Pans: Bank of America, Wachovia, AMD, Fred's, Ryder


Analysts' opinions on stocks in the news Tuesday

From Standard & Poor's Equity ResearchS&P DOWNGRADES OPINION ON SHARES OF BANK OF AMERICA TO HOLD FROM BUY (BAC; 32.22):

BAC preannounces third quarter operating results of $0.15, vs. $0.82, $0.52 below our estimate. BAC also announces a capital raise of $10 billion and a 50% quarterly dividend cut to $0.32. Results were hurt by writedowns of $2.5 billion and a roughly $2 billion provision build ahead of likely further credit deterioration. We are lowering our 2008 EPS forecast by $0.63 to $1.59, due to higher provision projections. We are also lowering our 12-month target price by $12 to $33, roughly 10% above book value of $30. We are encouraged, though, by BAC's ability to remain profitable despite severe credit turmoil. -S. Plesser

S&P MAINTAINS HOLD OPINION ON SHARES OF WACHOVIA (WB; 5.78):

WB and its two suitors - Wells Fargo (WFC; 34.00) and Citigroup (C; 17.00) - agree to cease litigation until noon on Wednesday in an attempt to reconcile the companies' claims to merge with WB. Meanwhile, according to an unconfirmed report in The Wall Street Journal, there are ongoing discussions between the C and WFC of splitting WB up, with C buying branches of WB in the Northeast and Mid-Atlantic regions and WFC buying branches in the Southeast U.S. and California. It is still unclear to us how this imbroglio will be resolved. We maintain our target price at $6. -S. Plesser

S&P REITERATES HOLD RECOMMENDATION ON SHARES OF ADVANCED MICRO DEVICES (AMD; 4.81):

AMD details its "asset smart" strategy details, including spinoff of manufacturing operations to a new foundry joint venture with an Abu Dhabi investment company, transferring $1.2 billion in debt to the joint venture, receiving about $1 billion cash from the investment company as well as increased investment in AMD by shareholder Mubadala Development. We see the proposed deal, expected to close in early 2009, providing liquidity and improving long-term financials. But we still see Intel (INTC; 16.77) keeping the technological lead and taking share in high-end markets. We maintain our 12-month $5.50 target price. -C. Montevirgen

S&P REITERATES HOLD RECOMMENDATION ON SHARES OF FRED'S INC (FRED; 11.65):

FRED reports September comparable-store sales increased 1.1%, below our 2.0% projection. The company reduces October-quarter EPS guidance to $0.14-$0.16 from $0.16-$0.18 citing an unfavorable shift in product mix as consumers trade down to lower-margin goods. We are reducing our fiscal year 2009 (January) and fiscal year 2010 EPS estimates by $0.04 and $0.05 to $0.71 and $0.78, since we expect unfavorable consumer trends to continue through the first half of fiscal year 2010. As a result, we are reducing our 12-month target price by $2 to $13, based on updated comparative and forward 12-month p-e analyses. -J. Agnese

S&P MAINTAINS HOLD RECOMMENDATION ON SHARES OF RYDER SYSTEM (R; 54.17):

We turn more cautious on Ryder amid credit market dislocations, as well as on likely slowing in its lease operations, which provide about one-third of revenues. We expect leasing rates to rise on higher cost of financing and greater risk to residual values. This, at a time when customers are more likely to allow contracts to roll off, prompts us to lower our EPS estimate for 2008 by $0.04 to $4.61, and 2009's by $0.16 to $5.20. We think Ryder's business model provides more earnings stability than truckload peers, but cut our target price by $15 to $61 on lowered DCF and p-e metrics. -K. Kirkeby-CFA


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