Markets & Finance

S&P Picks and Pans: Yahoo, eBay, Ford, Johnson & Johnson, Alkermes


Analysts' opinions on stocks in the news Monday

From Standard & Poor's Equity ResearchS&P REITERATES BUY OPINION ON SHARES OF YAHOO INC. (YHOO; 11.51):

An unconfirmed report in The Times of London states that YHOO is in talks to sell its search business to Microsoft (MSFT; 20.22) for some $20 billion. We think that even though such a transaction would make sense for both companies, the indicated 24% premium to YHOO's entire market capitalization seems excessive and unlikely, especially given MSFT's enviable bargaining position. Nonetheless, despite considerable challenges, we view YHOO as attractively valued and we believe a MSFT search-focused agreement of some sort could be a material positive catalyst. -S. Kessler

S&P REITERATES BUY OPINION ON SHARES OF EBAY INC. (EBAY; 12.83):

Today is Cyber Monday, online retail's version of Black Friday, and we expect notable related customer searching, browsing and purchasing activity. Our quick survey across the Internet, including shop.org's CyberMonday.com, indicates substantial promotional activity around free shipping, and discounts of up to 60%. We believe that holiday season online retail sales will be roughly flat with last year, but related margins will be challenged at best. We think consumers will gravitate towards better known and more stable businesses, including those owned by companies like EBAY. -S. Kessler

S&P MAINTAINS HOLD OPINION ON SHARES OF FORD (F; 2.88):

Ford plans to review options for Volvo car operations in light of depressed global automotive demand. Domestic automakers are reevaluating their global brand and asset portfolios as they prepare comprehensive restructuring plans to prove to Congress that they are bailout-worthy. Industrywide, we expect U.S. November sales to be down sharply year-to-year, much like October sales were. While domestic brands will likely lose market share, the pain should be shared with foreign brands too. Also, we expect November sales to be down in many global regions, as economic activity sags. -E. Levy-CFA

S&P REITERATES STRONG BUY OPINION ON SHARES OF JOHNSON & JOHNSON (JNJ; 56.93):

JNJ agrees to acquire Mentor (MNT; 31, not ranked), a maker of silicone breast implants and other aesthetics items, for $1.07 billion in cash. Coming on the heels of JNJ's plan to buy Omrix (OMRI; 25, not ranked), we see the MNT move as part of a strategy to solidify positions in growing medical device markets in the face of challenging prospects in drugs. We think that priced at 2.8 times sales, in line with other medical device firms, the MNT deal has long-term potential. We are keeping our $75 target price, a peer p-e of 15.9 times our 2009 EPS estimate of $4.72 (cut today from $4.75 to reflect MNT dilution). -H. Saftlas

S&P REITERATES HOLD OPINION ON SHARES OF ALKERMES (ALKS; 7.23):

ALKS ends its collaboration with Cephalon (CEPH; 72.00) for Vivitrol, returning the full U.S. rights to ALKS. CEPH will pay $11 million to share expected losses, and ALKS will purchase equipment for $16 million and recognize $120 million in milestones and previously deferred revenues in the December quarter. As a result, we are raising our fiscal year 2009 (March) EPS estimate by $1.23 to $1.49, but keeping fiscal year 2010's at $0.32. We see modest Vivitrol growth for alcohol dependence and we are wary of costs needed to promote the drug, but we view it as a minor long-term value driver. We are keeping our 12-month target price at $8. -S. Silver


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