Markets & Finance

S&P Picks and Pans: GM, Anadarko Petroleum, Biovail, Elizabeth Arden, American Greetings


Analysts' opinions on stocks in the news Tuesday

From Standard & Poor's Equity ResearchS&P MAINTAINS SELL OPINION ON SHARES OF GENERAL MOTORS (GM; 3.85):

We are encouraged by news of U.S. government funding for GMAC, GM's minority-owned financing operation. This should ease some constraints on consumers by improving the availability of credit for GM customers and reducing their cost of borrowing. It also removes our concern that a failure of GMAC would add to disruptive shrinkage of GM's dealer network, further crimping sales. But even so, we see 2009 as a challenging year for the industry in the U.S. and globally, with GM expected to request additional government funding as losses likely mount on weaker sales. -E. Levy-CFA

S&P LOWERS OPINION ON SHARES OF ANADARKO PETROLEUM TO HOLD, FROM BUY (APC; 37.05):

On our updated 2008 and 2009 price forecasts for crude oil at $100 a barrel and $43 a barrel, and natural gas at $9/MMbtu and $6.40/MMbtu, we cut our 2008 EPS estimate by $0.76 to $5.64 (with $0.60 derivative gains) and 2009's by $3.58 to $0.27. We project a 2% drop in 2008 volume on asset sales and downtime, but see modest 2009 growth of 5%. We see catalysts from exploration in Ghana and Brazil, but little upside to production forecasts over the next two years. We cut our target price by $9 to $42, reflecting weaker pricing outlook on updated DCF, proved-reserve NAV, and relative analysis. -M. Kay

S&P REITERATES HOLD RECOMMENDATION ON SHARES OF BIOVAIL (BVF; 9.10):

BVF voluntarily recalls certain lots of Ultram ER 100mg tablets after finding them to be out-of-specification by about 1% with respect to maximum dissolution at the eight-hour mark. BVF estimates the recall will impact fourth quarter revenues by $4.4 million, most of which should be recovered in the first quarter as replacement shipments are made to Johnson & Johnson (JNJ) , which markets Ultram ER. BVF says the minor dissolution variance is not a safety issue. Also, we expect only a 2% impact on fourth quarter sales. We keep our 12-month target price for BVF at $11, applying a below-peers p-e of 9.6 to our 2009 EPS estimate. -H. Saftlas

S&P MAINTAINS HOLD RECOMMENDATION ON SHARES OF ELIZABETH ARDEN (RDEN; 11.76):

We are taking a more cautious approach toward holiday sales in 2009. We maintain our fiscal year 2009 (June) operating EPS estimate for RDEN of $1.35, vs. $1.31 in fiscal year 2008, but now look for calendar 2009 EPS of $1.45, reduced from $1.71, and are lowering our p-e-based target price by $4 to $15. For the current December-quarter, we look for sales to increase by close to 1%, with June 2008 acquisition of Liz Claiborne fragrance licenses contributing 11% to growth but with forex impact negative. We forecast a decline in December-quarter operating margin of 260 basis points, a 28% tax rate vs. 25%, and EPS of $0.94 vs. $1.15. -L. Braverman, CFA

S&P MAINTAINS SELL OPINION ON SHARES OF AMERICAN GREETINGS (AM; 6.70):

AM agrees to acquire Recycled Paper Greetings, a producer of humorous greeting cards with annual sales of about $80 million, subject to Recycled Paper's completion of a pre-packaged Chapter 11 reorganization. The consideration for the acquisition includes up to $18.4 million in cash and $54.7 million of new 7.375% notes due in 2016, in addition to the prior $44.2 million investment made by AM in Recycled Paper. While we see the acquisition expanding AM's product offering, we believe results will continue to be pressured by a weak retail and economic environment into 2009. Our target price remains $6. -P. Wang


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