Markets & Finance

S&P Picks and Pans: GE, Sears, Staples, Beazer Homes, St. Jude Medical


Analysts' opinions on stocks in the news Tuesday

From Standard & Poor's Equity ResearchS&P MAINTAINS HOLD OPINION ON SHARES OF GENERAL ELECTRIC (GE; 16.92):

We are lowering our 2008 EPS estimate by $0.14 to $1.82, primarily due to an expected $1.2 billion fourth quarter charge for restructuring and loan losses in GE's Capital Finance segment. We are also reducing our 2009 EPS estimate by $0.18 to $1.64 due to the company's plans to reduce its finance portfolio and loan-loss reserve estimates for 2009. Although we see restructuring resulting in a much smaller finance business, we view GE's restructuring, funding and loan-loss provisioning plans as prudent and likely to result in a less risky financial business model. -R. Tortoriello

S&P MAINTAINS SELL OPINION ON SHARES OF SEARS HOLDINGS (SHLD; 31.71):

On a $100 million shortfall to our sales forecast, October-quarter operating loss per share of $0.90, vs. EPS of $0.01, is $0.14 wider than our estimate. We view SHLD's more aggressive closure of underperforming stores as a positive. But we see ongoing challenges in merchandising and marketing. On further sales and margin erosion we expect, we cut our fiscal year 2009 (January) operating EPS estimate by $0.50 to $0.60. We also now project an operating loss per share of $0.20 in fiscal year 2010, well below our prior $0.65 EPS estimate. Our target price remains $30 on peer enterprise value-to-EBITDA valuation. -J. Asaeda

S&P REITERATES BUY RECOMMENDATION ON SHARES OF STAPLES (SPLS; 16.15):

Excluding one-time items, October-quarter EPS of $0.42, vs. $0.42, is a penny higher than our estimate. While same-store-sales at the North American Retail division declined 8%, in line with our forecast, we were impressed by relative strength of North American Delivery in this challenging climate for businesses. The integration of Corporate Express should further entrench SPLS as the market leader in this space, and also should generate approximately $300 million annually in cost synergies. We are increasing our fiscal year 2009 (January) EPS estimate to $1.37 from $1.36 but are keeping fiscal year 2010 at $1.46. -M. Souers

S&P MAINTAINS HOLD RECOMMENDATION ON SHARES OF BEAZER HOMES (BZH; 1.50):

Including asset impairment charges of $64.8 million, BZH posts September-quarter loss of $12.32, vs. a loss of $3.95, wider than our $2.64 loss estimate. Sales declined 36% with high cancellation rates and lower net orders. With backlog contract value at $326 million vs. $838 million a year ago, we forecast a 36% sales decline in fiscal year 2009 (September), but we look for a 10% sales rise in fiscal year 2010 since we expect the housing market to improve. On better cost controls, we are narrowing our fiscal year 2009 loss estimate to $5.00 from $7.50. Using a 0.30 price-to-book ratio, lowest among peers, we reduce our target price to $3 from $6.50. -K. Leon-CPA

S&P KEEPS BUY OPINION ON SHARES OF ST. JUDE MEDICAL (STJ; 26.80):

STJ lowers its revenue and EPS outlook for the fourth quarter and 2009 due to the strengthening U.S. dollar vs. the euro and yen. We recently cut our 2009 EPS view by $0.10 to $2.55 to reflect currency swings, but now further reduce our forecast to $2.50. We are also trimming our fourth quarter estimate by $0.04 to $0.58. Based on ongoing valuation compression for peers and the S&P 500, we cut our target price by $4 to $32. Still, we believe STJ's underlying fundamentals remain strong, and at 10.7 times our 2009 estimate, translating into a forward PEG of 0.8, STJ is attractively priced, in our view. -R. Gold


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