Markets & Finance

S&P Picks and Pans: Freeport McMoRan, RIM, GM, Constellation Energy, Eastman Chemical


Analysts' opinions on stocks in the news Wednesday

From Standard & Poor's Equity ResearchS&P DOWNGRADES SHARES OF FREEPORT MCMORAN COPPER & GOLD TO SELL FROM BUY (FCX; 21.82):

Our opinion change is based on valuation and a more pessimistic outlook for EPS. Shares of FCX are down in pre-market trading after news the company plans to suspend the dividend and cut production targets for copper and molybdenum in response to declining metal prices. We are reducing our 2008 EPS estimate to $6.90 from $8.02 and lowering 2009's to $3.20 from $6.93. Based on our revised EPS estimate for 2009 and our expectation that FCX will carry a low p-e in the context of a slowing world economy, we are reducing our 12-month target price to $15 from $46. -L. Larkin

S&P MAINTAINS BUY OPINION ON SHARES OF RESEARCH IN MOTION (RIMM; 37.32):

RIMM says November-quarter EPS will be below its prior guidance, and our recently lowered forecast of $0.87. It cites weaker non-U.S. currencies and macroeconomic pressure, as well as a slower rollout of products, which we had previously forecast. However, even with the miss, we believe organic revenues will be up 65% from a year as RIMM's smartphones remain in demand. We are lowering our fiscal year 2009 (February) EPS estimate by $0.09 to $3.37 and fiscal year 2010's by $0.25 to $3.90. Though we are cutting our target price to $51 from $60, on p-e analysis, we see RIMM as attractive, growing faster than peers. -T. Rosenbluth

S&P REITERATES SELL OPINION ON SHARES OF GENERAL MOTORS (GM; 4.67):

Despite our concerns, we think that the business plan GM has given to Congress is sufficient in outline to garner assistance approval. In the plan, stakeholders, including management, workers and others, will share in the pain. Like Ford (F; 2.70) it gives a timeline towards profitability. However, unlike Ford, which said it may not need immediate assistance, GM expressed an urgent need for a $4 billion loan right away. We see risks to GM's ability to obtain desired concessions from creditors and to maintain marketshare with fewer brands. Also, we expect dilution to shareholders. -E. Levy-CFA

S&P REITERATES HOLD OPINION ON SHARES OF CONSTELLATION ENERGY (CEG; 28.41):

CEG shares are up sharply on an unsolicited bid by France's Electricite de France (EDF) roughly doubling the $4.7 billion ($26.50/share) pending purchase by Berkshire Hathaway's (BRKA; 100,300, hold) MidAmerican Energy. Electricite offered $4.5 billion for 50% of CEG's nuclear assets, an option for CEG to sell it its non-nuclear generation assets for up to $2 billion, and $1 billion cash investment for preferred stock. We raise our target price by $5 to $31. While this offer could lead to shareholder rejection of BRK.A's offer, we think the transaction would face regulatory uncertainty. -J. McCann

S&P REDUCES OPINION ON SHARES OF EASTMAN CHEMICAL TO HOLD FROM BUY (EMN; 28.76):

EMN sees fourth quarter sales down over 20% from a year ago and from the third quarter, and EPS significantly below prior guidance of about $0.90. It projects volumes down more than 15% as demand began to decline in late October while prices are under pressure. We do not see EMN fully benefiting from lower feedstock costs until 2009 and it will suffer nearly $60 million in hedging costs. We are cutting our fourth quarter and 2008 EPS estimates by $0.70 each, to $0.22 and $4.60, and 2009's to $4.50 from $5.75. Our target price goes to $32 from $50, but with what we view as a secure dividend, yielding 6.1%, we would hold EMN. -R. O'Reilly-CFA


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