Markets & Finance

S&P Picks and Pans: IBM, National City, AIG, Wachovia, Ameriprise


Analysts' opinions on stocks in the news Thursday

From Standard & Poor's Equity ResearchS&P MAINTAINS STRONG BUY OPINION ON SHARES OF INTERNATIONAL BUSINESS MACHINES (IBM; 90.55):

IBM announces preliminary third quarter results, including EPS of $2.05, vs. $1.68, and $0.03 above our estimate. Revenue rose 5%, aided by currency effects, but missed our 8% growth estimate. Gross margin topped our forecast. But, we still see advantages from the company's large-scale operations and recurring revenue streams from services we think make IBM more attractive than most peers, despite economic headwinds. On small adjustments, we trim our EPS estimates to $8.95 from $9.00 for 2008, and to $10.10 from $10.35 for 2009. We are also lowering our target price to $135 from $165. -T. Smith-CFA

S&P MAINTAINS HOLD RECOMMENDATION ON SHARES OF NATIONAL CITY CORP (NCC; 2.23):

According to unconfirmed report in the Wall Street Journal, NCC may be in discussions to sell itself, possibly to PNC Financial (PNC; 68) or Bank of Nova Scotia (BNS; 41). We are keeping our $3 target price, based on a sharp discount-to-peers 0.95 times our tangible book value estimate of $3.16 per share, reflecting the current serious challenges to NCC's credit quality. We also think NCC's nearly $15.4 billion in Tier 1 capital at the end of the second quarter, 11.08% of risk-adjusted assets, should be high enough so as to not require NCC to seek additional capital in rest of 2008. -E. Oja

S&P MAINTAINS HOLD RECOMMENDATION ON SHARES OF AMERICAN INTERNATIONAL GROUP (AIG; 3.19):

AIG said it entered into a securities lending agreement with the NY Federal Reserve Bank covering $37.2 billion of securities. It is our understanding the Fed action was necessitated by a decline in the value of collateral backing of a securities lending transaction, reportedly because AIG invested the collateral in mortgage-backed securities that fell in value, making it difficult for AIG to meet a collateral call. We view this as troubling and see further risk to AIG's turnaround plan. We are cutting our target price by $1.50 to $4, assuming further book-value deterioration. -C. Seifert

S&P MAINTAINS HOLD OPINION ON SHARES OF WACHOVIA CORP. (WB; 5.06):

An unconfirmed report in the Wall Street Journal says that talks between Citigroup (C; 14) , Wells Fargo (WFC; 32) and the U.S. government regarding the future of WB have stalled. The parties are said to be disputing the division of deposits, loans, securities, and even WB's computer banking system. WSJ also reports that both Citi and WFC have been surprised by the concentration of low-quality assets. We believe a deal will get done, but we think the WB franchise is being further damaged as talks drag on and the likelihood of government support being part the deal is growing. -S. Plesser, M. Albrecht

S&P LOWERS OPINION ON SHARES OF AMERIPRISE FINANCIAL TO HOLD FROM BUY (AMP; 25.81):

AMP said late yesterday that during the third quarter, unrealized losses on its investment portfolio grew to about $1.5 billion from $915 million, as credit spreads widened. It expects to post after-tax realized losses of more than $200 million for the quarter, related to investments in troubled firms. Earnings should be further pressured by support of money market funds, but AMP expects some gain from amortized compensation adjustments. We are lowering our 2008 EPS estimate to $2.45 from $3.78 and our target price to $30 from $48, 12.2 times our 2008 EPS forecast, a steep discount to peer multiples. -M. Albrecht


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