Markets & Finance

S&P Picks and Pans: GM, Bank of America, United Technologies, Legg Mason, BorgWarner


Analysts' opinions on stocks in the news Friday

From Standard & Poor's Equity ResearchS&P REITERATES SELL OPINION ON SHARES OF GENERAL MOTORS (GM; 3.94):

Following the Senate's failure to approve the $14 billion automotive bailout package, the White House seems poised to fill the funding void to prevent an automaker bankruptcy. We think the TARP program is the most likely source of funds. Without aid, GM could file for bankruptcy protection, an act that we think would hurt the company, its supply chain, dealers, competitors and the greater economy, and reinforce a vicious cycle of lower demand. However, even with a bailout, we see GM challenged by weakening global sales, and think it would need to return for more funding in 2009. -E. Levy-CFA

S&P DOWNGRADES OPINION ON SHARES OF BANK OF AMERICA TO HOLD FROM BUY (BAC; 14.91):

BAC announces 35,000 job cuts, roughly 10% of employees including those of pending merger partner Merrill Lynch (MER; 13.00). We think the cuts are proof that 2009 is shaping up to be a tougher year than management previously expected. We are also wary of BAC's tangible capital levels, which are significantly lower than those of peers. BAC may be forced to cut its dividend once again to preserve equity and it may have to raise additional equity capital should levels deteriorate further. We are lowering our target price by $8 to $17, a below-historical 1.7 times tangible book value. -S. Plesser

S&P REITERATES STRONG BUY ON SHARES OF UNITED TECHNOLOGIES (UTX; 47.40):

In an investor update, UTX reports rapid recent deterioration in its end-market conditions. As a result, we are lowering our 2008 EPS estimate by $0.03 to $4.90, and 2009's by $0.30 to $4.90. However, we see a number of positive factors at UTX not present at its peers, including its expectation of margin improvement at all six segments next year, and free cash flow near income. We see UTX's liquidity position as strong and its valuation as attractive on a long-term basis, and we have strong positive views on its global reach, executive management, and operational efficiency.-R. Tortoriello

S&P KEEPS HOLD OPINION ON SHARES OF LEGG MASON (LM; 19.92):

The company announces it has sold structured investment vehicle holdings totaling $1.7 billion, and remaining exposure totals $1.4 billion. The charge to earnings in the December-quarter will be $4.48 per share. Including the resulting tax benefit, cash on hand now exceeds remaining SIV exposure. We think the move is a positive, and we expect LM to keep working towards eliminating all remaining exposure. We widen our fiscal year 2009 (March) loss estimate to $4.05 from $1.84, but we are raising our target price by $7 to $23, a higher forward earnings multiple based on an improved outlook we see. -M. Albrecht

S&P REITERATES HOLD RECOMMENDATION ON SHARES OF BORGWARNER (BWA; 19.47):

Based on a challenging global auto industry, BWA cuts EPS guidance for 2008 by 18%, to $1.85-$1.95 before special items. This follows a 21% cut in October. The company expects its workforce to be down 17% by year-end, and plans extended holiday plant shutdowns in both North American and Europe. We continue to view BWA as liquid, with a strong balance sheet, and note that its backlog recently exceeded $2 billion. We cut our 2008 EPS estimate by $0.40 to $1.90, and 2009's by $0.70 to $1.60. Based on our revised relative and DCF-based metrics, we trim our target price by $2 to $22. -K. Kirkeby-CFA, S. Scharf


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