Markets & Finance

S&P Picks and Pans: MGM Mirage, Honeywell, Huntsman, BHP Billiton, Borland


Analysts' opinions on stocks in the news Monday

From Standard & Poor's Equity ResearchS&P MAINTAINS HOLD RECOMMENDATION ON SHARES OF MGM MIRAGE (MGM; 11.66):

MGM agrees to sell its Treasure Island Hotel and Casino for $775 million to Ruffin Acquisition LLC. The transaction is expected to close in the second quarter of 2009, with the purchase price to be paid as $500 million in cash and $275 million in secured notes at 10% interest. MGM is expected to report a substantial gain on the sale. We see the transaction adding liquidity to MGM's balance sheet and as evidence that management is willing to take aggressive and necessary steps in a tough environment. We are raising our 12-month target price by $2 to $14 on revised enterprise value/EBITDA analysis. -E. Kwon-CFA

S&P REITERATES BUY RECOMMENDATION ON SHARES OF HONEYWELL (HON; 30.73):

At an investor conference, HON says it expects continued margin increases in 2009 in its two largest segments, Aerospace and Automation & Control Solutions, and sees free cash flow in excess of net income. However, we are lowering our 2008 EPS estimate by $0.02 to $3.70 and 2009's by $0.32 to $3.38, based on our view of sharply slowing global economics. We still view HON as very well-managed and in a strong position to capitalize on long-term emerging market growth, and we view valuation as attractive. We keep our $33 12-month target price, and note the shares yield 3.6%. -R. Tortoriello

S&P MAINTAINS HOLD OPINION ON SHARES OF HUNTSMAN CORP. (HUN; 5.85):

HUN terminates its agreement to be bought by Hexion Specialty Chemicals (set in July 2007 at $28/share,) in return for $1 billion, or about $4.25/HUN share. Hexion tried to get out of the agreement earlier this year, claiming the merged company would be insolvent. We see this settlement greatly helping HUN's balance sheet, but it falls short of HUN's earlier claims of damage exceeding $3 billion. HUN is still suing the banks that refused to provide committed funding to close the purchase. Given the level of proceeds and challenging conditions, we are cutting our target price by $5 to $10. -R. O'Reilly

S&P LOWERS RECOMMENDATION ON ADSS OF BHP BILLITON LTD TO HOLD FROM BUY (BHP; 42.93):

Our opinion change is based on valuation. We continue to estimate earnings per ADS of $4.37 for fiscal year 2009 (June) and $4.82 for fiscal year 2010. But following a recent rise in the price of the ADSs, we believe that BHP, trading at about 9.6 times our fiscal year 2009 EPS estimate, is no longer undervalued. We are maintaining our p-e-based 12-month target price at $42. Long term, we believe earnings will increase on a secular rise in demand for base metals and energy, along with industry consolidation. But with the ADSs trading about in line with our target price, our recommendation is hold. BHP yields 3.2%. -L. Larkin

S&P LOWERS OPINION ON SHARES OF BORLAND TO SELL FROM HOLD, ON VALUATION (BORL; 1.16):

BORL shares have risen above our 12-month target price, which we are keeping at $1, based on an enterprise value of 0.35 times our 2009 revenue estimate. We are concerned about BORL's viability and further revenue declines amid a company restructuring and an economic recession. Though BORL has cut its operating expenses, we still project operating losses of $1.85 and $0.22 in 2008 and 2009, respectively. We think continued operating losses will hamper BORL's ability to invest and attract top talent. In addition, BORL has $159 million of convertible senior notes that are due February 15, 2012. -J. Yin


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