Markets & Finance

S&P Picks and Pans: 3M, Chesapeake Energy, Itron, Dow Chemical, Worthington Industries. Human Genome


Analysts' opinions on stocks in the news Monday

From Standard & Poor's Equity ResearchS&P REDUCES RECOMMENDATION ON SHARES OF 3M TO HOLD FROM BUY (MMM; 56.86):

To reflect MMM's lower outlook and significantly lower organic order growth expectations, we are reducing our 2008 and 2009 revenue, margin and EPS forecasts. On reduced fourth quarter revenue, we are cutting our 2008 EPS estimate by $0.36 to $5.11. For 2009, we expect further revenue declines and slightly lower margins to lead to EPS of $4.66 (cut today from $5.70), reflecting declining organic order growth and negative effect of currency translation, partially offset by acquired growth. On lower forecasts, we are reducing our relative peer- and DCF-based 12-month target price by $9 to $58. -M. Christy, CFA

S&P MAINTAINS BUY RECOMMENDATION ON SHARES OF CHESAPEAKE ENERGY (CHK ; 14.57):

Shares are up sharply today after CHK ends plans to issue $1 billion in stock and amends acquisition shelf registration to 25 million shares from 50 million. CHK also cut capex thru 2010 by $2.9 billion (31%) and reduced production targets by 5%-10% for 2009 and by 10%-15% for 2010. CHK now sees 2009 drilling capex of $2.8-$3.1 billion, down 52% from projected 2008 levels. We lower our production growth forecasts to 6% and 11% in 2009 and 2010, after estimated 2008 growth of 19%. We reduce our 2009 EPS estimate by $0.23 to $3.31. On revised DCF, NAV and relative metrics, we lower our target price by $5 to $19. -M. Kay

S&P REITERATES STRONG BUY OPINION ON SHARES OF ITRON (ITRI; 56.10):

ITRI shares are up about 19% today, which we attribute to President-elect Obama's comments about creating an infrastructure-spending package to stimulate the economy. While we think ITRI's products targeting the utility industry would benefit over the long term, we believe the short-term impact on sales and earnings would be negligible. We note that our outlook reflects the long sales cycle (3-6 years) for ITRI's products. We are raising our target price by $10 to $72, reflecting an upwardly revised peer-premium p-e of 17.7 times our 2009 forecast given higher peer valuations. -R. Khalid, CFA

S&P MAINTAINS SELL OPINION ON SHARES OF DOW CHEMICAL (DOW; 20.42):

We believe DOW's restructuring announcement further demonstrates the difficult conditions facing the chemical industry. The company plans to cut annual costs by $700 million by 2010, in addition to the $800 million expected from the pending purchase of Rohm & Haas (ROH; 70.82). The new actions include cutting 11% of jobs, closing 20 facilities and selling businesses. DOW is idling about 180 plants in response to reduced demand and will lower capital spending sharply. We see 2009 EPS at $2.00, down from our 2008 estimate of $2.85 before special charges. Our target price remains $16. -R. O'Reilly-CFA

S&P REITERATES SELL RECOMMENDATION ON SHARES OF WORTHINGTON INDUSTRIES (WOR; 13.19):

Shares of WOR are up after news that the company is taking action to reduce its workforce by some 4% in addition to previously announced plant closings and job cuts. The actions are designed to cope with lower volume and prices for steel, along with sharply reduced demand in WOR's metal-framing business tied to reduced construction spending. The company sees $17 million in annual savings from these actions. We are raising our fiscal year 2010 (May) EPS estimate to $1.62 from $1.44 and lifting our 12-month target price to $12 from $10, as we think WOR will now be valued based on fiscal year 2010 EPS. -L. Larkin

S&P REITERATES HOLD OPINION ON SHARES OF HUMAN GENOME SCIENCES (HGSI; 2.06):

Albuferon meets primary endpoint of non-inferiority to standard of care Pegasys in Phase III study of treatment-naive patients with genotypes 2/3 chronic Hepatitis-C. HGSI expects additional data in early 2009 and plans regulatory filing by fall 2009. We are encouraged, as we view Albuferon approval as key to HGSI funding its long-term pipeline and addressing convertible debt due early next decade. Despite its dosing advantages over Pegasys, however, we view albuferon's commercial prospects as uncertain due to evolving Hep-C treatment paradigm. We keep our target price at $5. -S. Silver


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