Markets & Finance

S&P Picks and Pans: GM, Morgan Stanley, Wachovia, GE, Ericsson


Analysts' opinions on stocks in the news Friday

From Standard & Poor's Equity ResearchS&P REITERATES SELL OPINION ON SHARES OF GENERAL MOTORS (GM; 4.35):

We believe downward spiral of the global stock markets should further reduce worldwide vehicles sales, dragging down remaining pockets of strength amid growing consumer fear. We think global vehicles sales could decline year-over-year in 2008, with U.S. sales down 15% to 13.7 million. We are again cutting our 2009 U.S. sales forecast, to 13.4 million. Also, lower stock values will have a negative impact on GM's pension funding. This outlook puts greater liquidity pressure on the money-losing automaker. We cut our target price by $6 to $3 based on revised total enterprise value-to-EBITDA. -E. Levy-CFA

S&P MAINTAINS HOLD RECOMMENDATION ON SHARES OF MORGAN STANLEY (MS; 12.45):

We expect MS shares to open lower today following news that Moody's is reviewing its long-term debt ratings of MS for possible downgrade. We believe such a move would increase MS's already rising funding costs. Separately, Mitsubishi UFJ (MTU; 7.02) continues to pursue purchase of a sizeable stake in MS despite the falling stock price, and we expect the deal to be consummated within the next week. We are lowering our fiscal year 2008 (November) EPS estimate by $0.33 to $4.09 and cutting our target price to $18 from $30, 0.6 times projected book value, a discount to peers. -M. Albrecht

S&P MAINTAINS HOLD OPINION ON SHARES OF GENERAL ELECTRIC (GE; 18.99):

Third quarter EPS of $0.45, vs. $0.50, is $0.03 below our forecast, on 3% organic revenue growth. Results were held back by marks-to-market/impairments in financial units and slowing demand in healthcare. We are maintaining our 2008 EPS estimate of $2.00 and 2009's of $1.97. We see GE as well-capitalized and able to withstand financial turmoil, and we view its dividend as secure. We note total backlog is up 20% to $170 billion, with few cancellations, but see rising loan-loss provisions at the GE capital unit constraining results. We still also see infrastructure businesses generating growth. -R. Tortoriello

S&P MAINTAINS HOLD RECOMMENDATION ON SHARES OF WACHOVIA (WB; 4.69):

WB's shares are up sharply today as Citigroup (C; 12.95) has opted to cease negotiations with Wells Fargo (WFC; 27.02). The move clears the way for WFC to proceed with a definitive agreement to merge with WB, pending the necessary approvals. We believe WB's shareholders are better served with WFC's offer as it doesn't entail splitting WB up. We are reducing our target price $1 to $5, a slight discount to WFC's offer of 0.1991 WFC shares for each WB share. Our discount accounts for the possibility of further complications with the merger. -S. Plesser

S&P UPGRADES OPINION ON ADSS OF ERICSSON TO HOLD FROM SELL, ON VALUATION (ERIC; 6.17):

We are lowering our sales forecast ahead of ERIC's third quarter results, as we believe telco customers in developed markets (providing roughly 50% of ERIC's sales) are focusing increasingly on preserving cash flow. We see this limiting growth for networks and professional services, even as emerging markets such as China provide a lower-margin offset for ERIC. We lower our 2008 and 2009 EPS estimates by $0.07 each, to $0.61 and $0.69. We cut our 12-month target price to $6.50 from $9.00 on revised p-e analysis. However, we would hold shares, which have fallen 45% since the end of August. -C. Van der Elst


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