Markets & Finance

S&P Picks and Pans: GM, RIM, Oracle, Darden, Electronic Arts, M&T Bank


Analysts' opinions on stocks in the news Friday

From Standard & Poor's Equity ResearchS&P REITERATES SELL OPINION ON SHARES OF GENERAL MOTORS (GM; 4.40):

As expected, the U.S. government approved loans to GM and Chrysler. However, the loans are just a temporary bridge until Mar. 31, when the automakers must show plans for long-term viability, including concessions from industry participants such as debtors and unions, or repay the loans. We expect GM to quickly run through the funds and to need additional multi-billion dollar funding just to meet 2009 needs during what looks like an auto depression. We view the news as good for suppliers, as it provides a lifeline to automakers, but industry outlook remains extremely challenging. -E. Levy, CFA

S&P MAINTAINS BUY OPINION ON RESEARCH IN MOTION (RIMM; 40.23):

RIMM posts November-quarter EPS of $0.83, vs. $0.65, a penny above our recently lowered estimate. Revenues were in line with our reduced forecast, hurt as expected by the late rollout of a new smartphone and by forex. RIMM's strong revenue guidance for February-quarter indicates to us its new products are in demand, but will pressure gross margins more than we expected. We are lowering our fiscal year 2010 (February) EPS estimate by $0.15 to $3.75, but up 10% from our fiscal year 2009 estimate. Despite slightly slower growth prospects, we maintain our p-e-based target price of $51 and view RIMM's balance sheet as a positive. -T. Rosenbluth

S&P MAINTAINS BUY RECOMMENDATION ON SHARES OF ORACLE CORP. (ORCL; 16.61):

November-quarter operating EPS of $0.32, vs. $0.30, is in line with our view. Sales rose 6% to $5.69 billion, modestly below our $5.73 billion forecast, reflecting forex impact. Licenses fell 3%, but non-GAAP maintenance growth of 15% was above our view. Operating margins widened notably. We continue to view ORCL as one of the more defensive software vendors given its operating leverage, maintenance streams, and cash flows. We trim our fiscal year 2009 (May) EPS estimate $0.02 to $1.43 and fiscal year 2010's by $0.01 to $1.60, on a higher projected tax rate and lower interest income. We keep our target price of $20. -Z. Bokhari

S&P LOWERS RECOMMENDATION ON SHARES OF DARDEN RESTAURANT TO HOLD FROM BUY (DRI; 27.56):

November-quarter EPS of $0.42, vs. $0.30, slightly exceeds our $0.41 estimate. DRI's 0.2% same-store sales decline for the quarter was substantially better than DRI's peer group, reflecting marketshare gains. However, we lower our fiscal year 2009 (May) same-store outlook from flat to -1%, and cut our EPS estimate by $0.20 to $2.55. We also trim our fiscal year 2010 estimate by $0.25 to $2.75. On revised DCF analysis to reflect higher debt levels, we lower our 12-month target price by $4 to $30. And with DRI having nearly doubled since the Nov. 20 S&P 500 low, we see the shares as near appropriate value. -M. Basham

S&P REITERATES SELL RECOMMENDATION ON SHARES OF ELECTRONIC ARTS (ERTS; 17.31):

ERTS sets another 400 cut in its workforce, for a total of 1,000, and closure of at least nine facilities as part of its restructuring plan. The company expects to save $120 million in annual operating expenses and will take $55-$66 million in restructuring charges. We believe the increased staff reduction and a profit warning from a competitor indicate that the slowdown in the video game industry is more severe than previously seen. However, we raise our fiscal year 2010 (March) EPS estimate by $0.05 to $0.48 on lower operating expenses, partly offset by lower revenues. We keep our target price of $15. -J. Yin

S&P MAINTAINS SELL OPINION ON SHARES OF M&T BANK (MTB; 56.89):

MTB agrees to acquire Provident Bankshares (PBKS; 9.33, NR) in a stock-for-stock transaction valued at $401 million, pending necessary approvals. We think the transaction would fit strategically, expanding branches in MTB's Maryland and Virginia footprint and adding roughly $4.5 billion in deposits. We value the deal at 1.4 times PBKS's tangible book value, and think the price is expensive, given the current environment and the roughly $650 million of additional loan writedowns MTB plans to take at closing. We are also wary of a possible need for an additional capital raise.-S. Plesser


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