Markets & Finance

S&P Picks and Pans: Bank of America, Microsoft, Apple, eBay, Citigroup, Intel


Analysts' opinions on stocks in the news Thursday

From Standard & Poor's Equity ResearchS&P MAINTAINS HOLD OPINION ON SHARES OF BANK OF AMERICA (BAC; 5.88):

According to an unconfirmed report in the Wall Street Journal, former Merrill Lynch CEO John Thain has resigned from BAC. According to the report, BAC lost confidence in him after learning of Merrill's fourth quarter losses. The report also says that BAC CEO Ken Lewis believes Thain exercised poor judgment on a number of matters. We are not surprised by the news and think it could actually be looked at as a positive for BAC, given building tension between Thain and BAC, not to mention some key executive departures, which may have been related to Thain. -S. Plesser

S&P MAINTAINS HOLD RECOMMENDATION ON SHARES OF MICROSOFT (MSFT; 17.78):

MSFT posts December-quarter EPS of $0.47, vs. $0.50, $0.03 below our estimate. Revenue rose 1.6% to $16.6 billion, $629 million below our projection. The revenue shortfall was led by a 9.2% decline in client revenue, due to weak PC demand and a continued shift to lower-priced netbooks. Total worldwide PC shipments were flat in the quarter. Other divisions also missed our revenue estimates. MSFT plans to eliminate 5,000 employees, saving $1.5 billion in annual operating expenses. We are cutting our fiscal year 2009 (June) EPS forecast by $0.22 to $1.72, fiscal year 2010's by $0.42 to $1.74, and our target price by $3 to $22. -J. Yin

S&P REITERATES STRONG BUY RECOMMENDATION ON SHARES OF APPLE (AAPL; 82.83):

AAPL reports December-quarter EPS of $1.78, vs. $1.76, which is above our estimate for $1.55. Revenue rose 5.8%, led by growth in iPhones. Total deferred revenue rose $1.8 billion quarter-to-quarter. PC unit sales outpaced the industry. Gross margin was 34.7%, in line with last year, but above our estimate of 32%. We view the company's results and prospects as strong given the context of a downturn in consumer electronics demand. We are raising our fiscal year 2009 (September) EPS estimate to $5.65 from $5.50. We are lowering our 12-month target price to $123 from $127, as we employ a lower target p-e. -T. Smith-CFA

S&P REITERATES BUY OPINION ON SHARES OF EBAY (EBAY; 13.28):

Before amortization charges, EBAY posts fourth quarter EPS of $0.37, vs. $0.42, $0.04 above our forecast. Revenues fell 7%, reflecting continued weakness in the marketplaces segment, more specifically the traditional auction business, offset somewhat by Skype and PayPal. Owing to notable global economic and company-specific challenges, we are lowering our 2009 EPS estimate to $1.57 from $1.63. Given revisions to our DCF model, we are reducing our 12-month target price to $18 from $23. However, selling well below our target price, we view EBAY as undervalued. -S. Kessler

S&P MAINTAINS HOLD OPINION ON SHARES OF CITIGROUP (C; 3.65):

Citigroup names Richard Parsons as its new chairman, succeeding Sir Win Bischoff. The move, which we had expected, comes amid other director changes including the departure of Robert Rubin. Although we view new leadership as a positive, we note that Mr. Parsons was part of a board of directors that we believe should shoulder some of the blame for what we see as Citi's weak balance sheet. Nevertheless, we support the company's current plan to shed a third of its assets, since we think capital levels will likely reach more favorable levels if these assets can be sold at holding value. -S. Plesser

S&P MAINTAINS BUY OPINION ON SHARES OF INTEL CORP (INTC; 13.26):

INTC announces plans to close facilities and consolidate operations, which could lead to job cuts of up to 6,000 employees. Three back-end plants in Asia will be shut down and production at two older plants in the U.S. will be halted. With the sharp dropoff in demand and the possibility that it may take several quarters before sales recover to early 2008 levels, we think capacity reduction is a prudent decision. On anticipated cost savings balanced by restructuring costs, we raise our 2009 EPS estimate by $0.09 to $0.40, and our DCF-based 12-month target price by $1 to $17. -C. Montevirgen


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