Markets & Finance

S&P Picks and Pans: BCE, Cadence, Stanley Works, Ciena, Eli Lilly, Baidu.com


Anaylsts' opinions on stocks in the news Thursday

From Standard & Poor's Equity ResearchS&P MAINTAINS HOLD OPINION ON BCE INC SHARES (BCE; 18.29):

BCE announces its pending private equity-led leveraged buyout, priced at about US$35, will not proceed due to potential solvency issues. BCE is seeking the $1.2 billion breakup fee, and separately plans to reinstate its dividend. We had held out hope the deal would close, but in light of reduced peer valuations and a tight credit market, we do not expect a new offer to emerge. We are lowering our 12-month target price by $14 to $21, removing the deal term assumptions and reflecting a 11.5 times multiple on our 2009 EPS estimate of $1.82, given a weak Canadian dollar. -T. Rosenbluth

S&P DOWNGRADES RECOMMENDATION ON SHARES OF CADENCE DESIGN TO SELL FROM HOLD (CDNS; 3.57):

CDNS posts third quarter loss of $0.67, vs. EPS of $0.41, wider than our $0.27 loss estimate on higher-than-expected restructuring charges. Revenue fell 42% to $232 million, $5 million below our forecast. CDNS has resolved its accounting issues and restated first quarter and second quarter results. However, it is still searching for a new CEO and faces a difficult transition amid an economic recession. We see revenue declining in the next few quarters. We are widening our 2008 loss estimate to $0.93 from $0.37 and cut our 2009 estimate to loss of $0.45 from EPS of $0.01. We are reducing our target price by $0.50 to $3.50. -J. Yin

S&P DOWNGRADES STANLEY WORKS TO HOLD FROM STRONG BUY OPINION (SWK; 32.61):

With SWK lowering 2008 EPS guidance to $3.30-$3.40, before fourth quarter charges, $0.35-$0.45 lower than previously indicated, we are reducing our 2008 EPS estimate to $3.35, from $3.90. We believe market conditions for the company's global industrial tools and construction businesses are likely to be weaker next year. We see mid-single digit sales declines, and lower our 2009 EPS estimate to $3.20 from $4.00. Despite our view that SWK has a strong management, we are less confident of a market rebound in 2009, and we cut our target price to $36 from $50 based on an 11.2 p-e, a bit above peers. -K. Leon-CPA

S&P MAINTAINS HOLD OPINION ON SHARES OF CIENA CORP (CIEN; 6.51):

October-quarter loss of $0.10, vs. $0.37, EPS misses our $0.04 EPS estimate on a 30% sequential sales decline, hurt by lower telecom expenditures. We see tighter telecom spending patterns persisting through most of 2009. Nevertheless, we remain positive on CIEN's long-term prospects, given its strong position in optical transport, which, in our view, is a critical component of the telecom industry's primary growth driver of broadband services. We keep our 12-month target price at $7, 0.6 times book value, below peers, which we think adequately reflects CIEN's near-term challenges. -A. Bensinger

S&P REITERATES HOLD OPINION ON SHARES OF ELI LILLY (LLY; 35.80):

LLY projects 2009 non-GAAP EPS of $4.00-$4.25 (after $0.30-$35 dilution from Imclone acquisition) vs. indicated $3.97-$4.02 for 2008. Despite forex headwind, we see 7% sales growth in 2009, lifted by Imclone's Erbitux oncology drug and gains in Cymbalta and Cialis. Imclone is not expected to be accretive to cash EPS until 2012. We view LLY pipeline as robust, with 59 projects, including for prasugrel blood thinner. However, LLY faces patent expiration losses on five key products by 2011. We keep our target price at $40, a peer-level 9.6 times our 2009 EPS estimate. Dividend yield is 5.2%. -H. Saftlas

S&P REITERATES BUY OPINION ON ADSS OF BAIDU.COM (BIDU; 118.02):

BIDU preannounces a fourth quarter revenue range with a mid-point 14% below the mid-point of prior guidance. We lowered our forecasts in mid-November after revelations about BIDU's material revenues from healthcare companies selling unlicensed products. We now trim our 2008 per-share profit forecast to $4.40 from $4.42, 2009's to $6.03 from $6.12, and 2010's to $8.23 to $8.35. Revenues are also being affected by an economic slowdown in China and the removal of what BIDU deemed questionable paid listings outside the health care area. Nonetheless, we think its shares are attractively valued. -S. Kessler


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