Markets & Finance

S&P Picks and Pans: Dow Chemical, Rohm & Haas, Satyam, Western Digital, SL Green Realty


Analysts' opinions on stocks in the news Monday

From Standard & Poor's Equity ResearchS&P MAINTAINS SELL OPINION ON SHARES OF DOW CHEMICAL (DOW; 19.34):

The Kuwaiti government has canceled the pending formation of a joint venture between DOW and Petrochemical Industries Co., which would have consisted of DOW's ethylene chain products lines; PIC was to pay Dow $7.5 billion for its 50% stake. The failure of the deal calls into question DOW's pending purchase of Rohm & Haas (ROH; 63.56), as DOW planned to use venture proceeds to fund a part of the $18 billion purchase price. If DOW can withdraw from the deal, it would have to pay a $750 million breakup fee to ROH. With questions regarding DOW's overall strategy, we continue to recommend sell. -R. O'Reilly-CFA

S&P MAINTAINS HOLD RECOMMENDATION ON SHARES OF ROHM & HAAS (ROH; 49.39):

We think the cancellation of the pending joint venture between Dow Chemical and Kuwait calls into question DOW's pending purchase of ROH at $78 a share. DOW had planned to use $7.5 billion of venture proceeds to pay a large part of $18 billion purchase price. If DOW were to withdraw from the ROH deal, it would have to pay $750 million breakup fee. A major foreign chemical company was reportedly also interested in ROH before its July 2008 agreement with DOW, but economic and credit conditions make us doubt any revised deal near DOW's offer. We cut our ROH target price by $28, to $50. -R. O'Reilly-CFA

S&P MMAINTAINS HOLD RECOMMENDATION ON ADSS OF SATYAM COMPUTER SERVICES (SAY; 8.33):

SAY shares are up this morning after it postpones its board meeting until Jan. 10 to give its directors additional time to consider steps to boost investor confidence, which may include board expansion or a change in its composition. SAY has it hired DSP Merrill Lynch to help review strategic options. We think a new slate of directors could usher in a change in senior management, which we would view favorably given the events of the past few weeks. We raise our target price by $2 to $9, though even at that level, SAY shares would be at a notable discount to peers. -D. Cathers, Z. Bokhari

S&P REITERATES HOLD RECOMMENDATION ON SHARES OF WESTERN DIGITAL (WDC; 11.02):

An unconfirmed Reuters report says that Fujitsu President Kuniaki Nozoe has told the Nikkei financial daily in Japan that there is no chance of a deal to sell its hard drive business to WDC. Meanwhile, we believe WDC is focused on running its business amid the weak global economic environment. We view its balance sheet as solid, with $1.2 billion in cash and investments and a debt-to-capital ratio of 15% as of September 2008. We are maintaining our 12-month target price of $13, based on a peer-discount p-e of 4.7 times our fiscal year 2009 estimate of $2.76. -R. Khalid, CFA

S&P MAINTAINS HOLD RECOMMENDATION ON SHARES OF SL GREEN REALTY (SLG; 25.84):

SLG cuts its quarterly dividend by 52%, to $0.375, which will save the company about $95 million in 2009. It says the savings will be used to pursue future investment opportunities and to pay down debt maturing in the near term. Although we believe SLG's previous dividend level was adequately covered, we view the company's decision to conserve cash and strengthen its balance sheet as a positive amid difficult market conditions. We keep our 12-month target price of $26. -R. Shepard, R. Pandya


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