Markets & Finance

S&P Picks and Pans: Apple, Synovus, Peabody Energy, Pfizer, Rohm & Haas, Varian


Analysts' opinions on stocks in the news Monday

From Standard & Poor's Equity ResearchS&P REITERATES STRONG BUY OPINION ON SHARES OF APPLE (AAPL; 93.66):

AAPL CEO Steve Jobs posts an open letter describing a personal illness, a weight-loss condition attributed to hormonal imbalance that should be readily treatable. He expects to regain the lost weight by late spring and plans to carry on with CEO duties. The board posts a letter of support for Jobs. We believe this unusually frank statement should help focus investor attention away from leadership succession and towards AAPL's keynote address at MacWorld this week and possible product introductions. We maintain our EPS estimates and 12-month target price of $127. -T. Smith-CFA

S&P REITERATES SELL OPINION ON SHARES OF SYNOVUS FINANCIAL (SNV; 7.07):

Ahead of Q4 report, SNV preannounces that its Q4 net chargeoff ratio will be 3.2% and that it will post $350 million of loss provisions. This is well above our estimate and is likely the result of declining home values combined with SNV's high level of non-performing assets, a near peer high 2.91% of total assets. We are lowering our '08 and '09 EPS estimates by $0.48 and $0.12, respectively, to a loss of $0.30 and EPS of $0.04. Based on these reductions, we now think SNV may have to cut its dividend. Our target price remains $6, a below-historical 0.7X tangible book value. /S. Plesser

S&P REDUCES OPINION ON SHARES OF PEABODY ENERGY TO HOLD FROM BUY (BTU; 25.75):

On a lower volume forecast, we cut our 2008 EPS estimate by $0.12 to $3.15 and 2009's $0.84 to $4.38. We see lower projected production volumes, based on reduced coal shipments to steel producers, based on weakening demand, slowing shipments out of Australian coal ports, and slightly weaker thermal coal volumes. Though we keep our 2009 pricing forecast, we note that recent spot price declines may pose a risk for both unpriced 2009 metallurgical coal production and for 2010 contract pricing. On lower estimates, we cut our target price by $12 to $28 based on relative peer valuation. -M. Christy, CFA

S&P REITERATES HOLD OPINION ON PFIZER SHARES (PFE; 18.30):

PFE tells the Financial Times it is constantly looking at small and large acquisition opportunities. We believe PFE's need to do a large deal has become more pressing, with the patent on $13 billion Lipitor expiring in 2011. While nearly all big pharma firms are chasing deals, we think PFE has an edge, given its size, global reach and cash resources of $26 billion. We believe PFE may be especially focusing on growing biotech firms, particularly on larger participants in that sector. We keep our $21 target price, which applies a discount-to-peers p-e of 8.3 times our 2009 EPS estimate. -H. Saftlas

S&P MAINTAINS HOLD RECOMMENDATION ON SHARES OF ROHM & HAAS (ROH; 63.41):

We are raising our 12-month target price for ROH to $65 from $50. While the cancellation last week of a pending joint venture between Dow Chemical (DOW; 15.50, sell) and Kuwait created doubt about DOW's pending purchase of ROH at the $78 per share agreed upon price, we believe DOW wants to go ahead with the deal, though it may seek a lower price. DOW had planned to use $7 billion of after-tax joint venture proceeds to pay a large part of the $18 billion purchase price for ROH. Our target price reflects risks that the buyout could either be not completed or may be revised lower. -R. O'Reilly-CFA

S&P REITERATES BUY RECOMMENDATION ON SHARES OF VARIAN SEMICONDUCTOR (VSEA; 17.61):

VSEA trims December-quarter revenue guidance to $105-$110 million from $115-$125 million, and sees gross margin of 37%-38%, cut from 40%-40.5%. It attributes the miss to a greater-than-expected decline in sales of semiconductor equipment and spare parts. We think VSEA continues to gain marketshare and is executing well on lowering expenses. As a result, we believe it will outperform peers when the industry begins to turn. We lower our fiscal year 2009 (September) estimate to an operating loss of $0.24 from $0.04 EPS, and initiate fiscal year 2010 at $0.65 EPS. We trim our target price by $1 to $23, a price/sales above peers. -A. Zino-CFA


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