Markets & Finance

S&P Picks and Pans: Costco, Electronic Arts, Disney, Yum Brands, Live Nation


Analysts' opinions on stocks in the news Wednesday

From Standard & Poor's Equity ResearchS&P REITERATES HOLD RECOMMENDATION ON SHARES OF COSTCO WHOLESALE (COST; 42.64):

COST sees February-quarter EPS sizably below Street estimate of $0.70 as it reports January comp-store sales down 2%, slightly better than our 2.6% decline forecast. We believe margins will remain under pressure with the company pricing aggressively in an effort to gain marketshare and with demand for discretionary goods lower in the weak economy. We also see fiscal year 2009 (August) results hurt by unfavorable forex and lower retail gas profits. As a result, we reduce our fiscal year 2009 EPS estimate by $0.25 to $2.70, and cut our 12-month target price by $13 to $43 on comparative and p-e analyses. -J. Agnese

S&P REITERATES SELL RECOMMENDATION ON SHARES OF ELECTRONIC ARTS (ERTS; 15.50):

December-quarter loss of $2.00, vs. loss of $0.10, misses our EPS estimate of $0.58. Results were hurt by $368 million in impairment charges. Revenue rose 10% to $1.65 billion, but was $74 million below our forecast. ERTS will reduce its number of titles, as consumers focus their spending on top-selling games. ERTS plans to cut 11% of its workforce and consolidate facilities, saving $500 million in annual operating expenses. Yet, we see demand falling faster than expenses. We widen our fiscal year 2009 (March) loss estimate by $2.48 to loss of $3.30. We lower our fiscal year 2010 EPS estimate by $0.16 to $0.32 and our target price by $1 to $14. -J. Yin

S&P MAINTAINS HOLD RECOMMENDATION ON SHARES OF WALT DISNEY COMPANY (DIS; 20.62):

Before $0.04 of one-time gains, December-quarter EPS of $0.41 on 6% less shares, vs. $0.63, is $0.13 lower than our estimate and $0.11 lower than Street's, with year-over-year revenue and EBIT respectively down 8% and 36%. Despite DIS's sobering forecast in early November, we are surprised by speed and severity of underlying deterioration across virtually all key businesses, reminiscent of last 2001 recession. Looking ahead, results offered few, if any, bright spots. We await update on its near-term outlook, as well as ongoing actions to mitigate sharp downturn in consumer spending. -T. Amobi-CPA,CFA

S&P MAINTAINS SELL OPINION ON SHARES OF YUM BRANDS (YUM; 28.79):

Fourth quarter EPS of $0.43, vs. $0.44, tops our $0.38 estimate on greater-than-expected restaurant refranchising gains and a 2 point lower tax rate. Otherwise, results were dramatically affected by dollar strength in international division, which we believe had a net benefit from forex changes. For 2009, we think because the international unit's books close 4 weeks earlier than in the U.S. and China, its results do not yet fully reflect the global economic slowdown. We keep our $2.00 EPS estimate for 2009, but we note higher reliance on refranchising gains. Our target price stays $28. -M. Basham

S&P MAINTAINS STRONG BUY OPINION ON SHARES OF LIVE NATION (LYV; 5.69):

Shares are up 14% this morning after unconfirmed WSJ report that archrivals LYV and Ticketmaster (TKTM) may be near a merger. We would be surprised by the timing of a combination of the world's largest concert promoter, and the leading ticketing and artist management company after LYV's January 2009 launch of in-house ticketing, and TKTM's October 2008 deal for top artist management company Front Line. We also note combined company could attain near-unprecedented global market power reaching well beyond live entertainment and ticketing, raising potentially significant anti-trust hurdles. -T. Amobi-CPA,CFA


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