Markets & Finance

S&P Picks and Pans: DuPont, AT&T, Worthington Industries, Capital One, Freddie Mac


Analysts' opinions on stocks in the news Thursday

From Standard & Poor's Equity ResearchS&P REDUCES RECOMMENDATION ON SHARES OF DUPONT TO SELL FROM HOLD (DD; 23.51):

We are surprised by the degree of impact from the economic downturn as DD warns of a fourth quarter per-share loss of up to $0.30, before $0.40 restructuring charge, on volumes falling more than 15%, and projects 2009 EPS below consensus. We are cutting our 2008 operating EPS estimate by $0.45 to $2.65 including $0.28 of costs from hurricanes, and 2009's by $0.50 to $2.50, which includes nearly $0.50 of greater pension cost and impact of a stronger U.S. dollar, offset by restructuring savings and lower raw material costs. On the disappointing outlook we cut our target price to $20 from $33. -R. O'Reilly-CFA

S&P MAINTAINS STRONG BUY OPINION ON AT&T SHARES (T; 29.08):

AT&T announces plans for a 4% workforce reduction and for lower capex in 2009, citing economic pressures and a shifting business mix. We believe this is prudent, as growth stems more from wireless services than wireline voice, while T has made progress in deploying its fiber broadband services during 2008. We believe the company will use the proceeds from these reductions to support debt reduction and provide flexibility to maintain its track record of annually raising its dividend, currently yielding 5.5%. We are keeping our 12-month target price of $34 and we view T attractive. -T. Rosenbluth

S&P DOWNGRADES OPINION ON SHARES OF WORTHINGTON INDUSTRIES TO SELL FROM BUY (WOR; 12.90):

Our opinion change reflects a worsening outlook for EPS. Citing the impact of lower steel prices, WOR expects to incur a $100 million pre-tax inventory write-down in its November quarter. We expect that this will result in a $0.71 loss for the quarter, worse than our $0.23 EPS estimate. We lower our fiscal year 2009 (May) EPS estimate to $0.91 from $2.13 and reduce our fiscal year 2010 estimate to $1.44 from $2.26, as we think that end-market weakness will more than offset WOR's current cost-cutting efforts. Based on our revised forecast for fiscal year 2009, we cut our 12-month target price to $10 from $25. -L. Larkin

S&P MAINTAINS HOLD OPINION ON SHARES OF CAPITAL ONE FINANCIAL (COF; 31.64):

COF announces that it will acquire Chevy Chase bank for $520 million in a cash and stock deal, pending the necessary approvals. The acquisition will add $11 billion in deposits (currently COF has $99 billion in deposits) and 292 branches largely in Maryland and Virginia. COF will take a $1.75 billion charge for potential losses in Chevy Chase's loan portfolio. We look favorably on the acquisition since it augments COF's deposit financing and also further diversifies its credit card lending business, which will likely come under pressure in 2009 as writeoffs mount. -S. Plesser

S&P MAINTAINS HOLD RECOMMENDATIONS ON SHARES OF FREDDIE MAC (FRE; 0.89) AND FANNIE MAE (FNM; 0.89):

An unconfirmed WSJ story said U.S. Treasury is considering a plan to buy securities underpinned by loans guaranteed by Freddie Mac and Fannie Mae, seeking to bring 30-year fixed mortgage rates down to as low as 4.5% - about 100 basis points lower than current rates - for new home buyers. We believe the plan could give some support to housing prices, but we see it having little effect on pace of foreclosures. That said, we note the potential for FRE and FNM to generate additional fees, as lower rates may lead to higher mortgage volumes. We are raising our target price to $1 from $0.50 for both stocks. -K. Cole-CFA


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