Markets & Finance

S&P Picks and Pans: GE, Google, Harley-Davidson, AMD, Microsemi, Chipotle


Analysts' opinions on stocks in the news Friday

From Standard & Poor's Equity ResearchS&P MAINTAINS HOLD RECOMMENDATION ON SHARES OF GENERAL ELECTRIC (GE; 12.60):

Fourth quarter EPS of $0.36, including preferred dividend, vs. $0.68, is $0.03 below our estimate, reflecting higher loss provisions than we expected in GE's capital finance unit. We are lowering our 2009 EPS estimate by $0.17 to $1.33 to account for the loss provisioning, and set 2010's at $1.45. We view a dividend cut as unlikely unless the severity of the financial industry crisis deepens, causing GE to need further capital infusion for financial services. However, we lower our 12-month target price by $4 to $14 on our reduced estimate and view of increased economic and financial risk. -R. Tortoriello

S&P REITERATES STRONG BUY OPINION ON SHARES OF GOOGLE INC (GOOG; 306.50):

Including stock-based compensation, GOOG posts fourth quarter EPS of $4.40 excluding a one-time impairment charge, vs. $3.79, well above our $3.92 estimate. Revenues rose 18%, paced by GOOG's websites. Forex negatively impacted growth by 550 basis points, but hedging aided EPS. Margins widened sequentially, as cost controls and cuts were implemented. We are raising our EPS estimates for 2009 to $18.79 from $17.62, and 2010 to $21.68 from $21.10. However, given our more conservative longer-term FCF growth outlook, we are lowering our 12-month target price to $450 from $500. -S. Kessler

S&P LOWERS OPINION ON SHARES OF HARLEY-DAVIDSON TO SELL FROM HOLD (HOG; 12.40):

HOG reports 6.8% lower fourth quarter revenues on shipment of 76,581 Harley-branded units, leading to EPS of $0.34, vs. $0.78, well below our $0.58 estimate. High fixed costs and poor results in HOG's financial services unit led to the bottom line shortfall. HOG plans to cut 1,100 jobs over two years and to reduce 2009 shipments by 10%-13%. We expect notably lower margins in 2009, possible worse than HOG forecasts. We see little reason for any near-term improvement, and cut our 2009 EPS estimate to $1.75 from $2.58. We lower our target price to $10 from $22 on EBITDA and p-e comparisons. -E. Kolb

S&P MAINTAINS HOLD OPINION ON SHARES OF ADVANCED MICRO DEVICES (AMD; 2.02):

AMD posts adjusted fourth quarter loss of $1.13, vs. $0.18 loss, much wider than our $0.41 loss estimate. Sales fell 35% from third quarter, reflecting weak shipments of microprocessors and graphics chips. Gross margin was far worse than expected, narrowing on a massive inventory write-down. Consequently, operating margins also fell. We widen our 2009 loss forecast by $0.18 to $2.65 on reduced margin expectation. We see continuing soft demand and sliding earnings, but we think planned reorganization and restructuring will help improve AMD's financial situation. We keep our 12-month target price of $2.50. -C. Montevirgen

S&P DOWNGRADES OPINION ON SHARES OF MICROSEMI TO HOLD FROM BUY (MSCC; 10.37):

December-quarter EPS of $0.26, vs. $0.23, misses our estimate by $0.04. Revenues declined 3% from the third quarter, reflecting weak analog, but healthy high-reliability device sales. Gross margin was below our model, narrowing modestly from September-quarter. With expenses higher than expected due to stock-based compensation, operating margin fell. We are cutting our fiscal year 2009 (September) EPS estimate by $0.96 to $0.41 and our 12-month target price by $14 to $12, based on our view of weak demand for non-high-reliability products, risks related to the investigation of the CEO's diplomas and new sales strategies. -C. Montevirgen

S&P LOWERS OPINION ON SHARES OF CHIPOTLE MEXICAN GRILL TO STRONG SELL FROM HOLD (CMG; 50.05):

We now expect CMG will likely experience lower customer traffic in 2009. We see competitive price discounting drawing traffic away, while lower employment makes expanding traffic during the lunch daypart more difficult. This marks a major change for CMG from robust traffic gains over the past several years. We think this will result in elimination of CMG's valuation premium to peers. We lower our 2009 revenue growth forecast to 10% from 16%, and cut our EPS estimate by $0.20 to $2.30. Our revised DCF-based target price is $37, cut from $48, 16 times that estimate. -M. Basham


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