Markets & Finance

S&P Picks and Pans: Sirius XM Radio, Viacom, NetApp, Alcoa, Activision Blizzard

Posted on February 12, 2009

Unconfirmed WSJ report says SIRI seeks funds from Liberty (LINTA) to rebuff Echostar (SATS) bid. Given Liberty's control of DirecTV (DTV), and SATS' common control with DISH (DISH), it seems the latest unexpected twist in SIRI's financing woes sets the stage for a control battle between two satellite TV providers for control of the sole satellite radio company, given very weak financial status. We note the interesting mix of tripartite personalities in SIRI's Karmazin, DISH's Ergen, and now Liberty's Malone. -T. Amobi-CPA,CFA

S&P MAINTAINS SELL OPINION ON CLASS B SHARES OF VIACOM (VIAb; 15.63):

Before $0.48 net one-time charges, fourth quarter EPS of $0.76, on 6% less shares, vs. $0.84 misses our estimate by $0.05 and Street's by $0.01. Revenue was flat and adjusted EBIT fell 6%. The impact of the global economic and consumer spending slowdown was again quite evident, with worldwide ads and home entertainment revenue down 3% and 6%, respectively, and ancillary revenue barely flat. As expected, fourth quarter bright spots included worldwide affiliate revenue, up 12%, and theatrical revenues, up 28% (on Madagascar 2). The a.m. call could offer fresh insights into early 2009 ad trends. -T. Amobi - CPA, CFA

S&P REITERATES SELL OPINION ON SHARES OF NETAPP INC (NTAP; 15.20):

NTAP reports January-quarter operating EPS of $0.16, vs. $0.26, below our $0.19 estimate. We expect a weak pricing and order environment in fiscal year 2009 (April) amid the global economic slowdown. However, we view NTAP's balance sheet as solid, with a net debt position as of January-quarter. As a result, we are reducing our fiscal year 2009 and fiscal year 2010 operating EPS estimates by $0.06 each, to $0.59 and $0.60, respectively. But we are increasing our target price by $2 to $12, on higher peer valuations. Our target price blends a revised peer-premium p-e of 18.4 times our fiscal year 2010 forecast with our DCF analysis. -R. Khalid, CFA

S&P MAINTAINS HOLD OPINION ON SHARES OF ALCOA INC. (AA; 7.70):

AA shares are up slightly in pre-market trading despite news that the company will receive $1.02 billion in cash from Aluminum Corp. of China (ACH; 14.12) for sales of its jointly owned stake in Rio Tinto (RTP; 112.80) to ACH. AA will incur a non-cash after-tax loss of $120 million in connection with the transaction. Also, AA intends to explore strategic relationships with ACH in alumina, aluminum, bauxite and fabricated products. We have a favorable view of the transaction, but we would not add to positions, as we believe AA may still have to cut its dividend. -L. Larkin

S&P MAINTAINS HOLD RECOMMENDATION ON SHARES OF ACTIVISION BLIZZARD (ATVI; 8.98):

ATVI posts fourth quarter loss per share of $0.05, vs. $0.15 EPS, $0.03 narrower than our $0.08 loss estimate. Revenue rose 262% to $1.64 billion, $39 million above our forecast, led by continued strong sales of Guitar Hero and Call of Duty. Although we believe ATVI is better positioned than other vendors because of its well-established franchises, we see lower demand and increased pricing pressure amid a worsening global economy. We also expect higher marketing costs and lower interest income. We are cutting our 2009 EPS estimate by $0.05 to $0.28, and our 12-month target price by $1 to $11. -J. Yin