Markets & Finance

S&P Picks and Pans: First Solar, Wynn Resorts, Dreamworks, TJX, Bank of America, Northrop Grumman


Analysts' opinion on stocks in the news Wednesday

From Standard & Poor's Equity ResearchS&P LOWERS OPINION ON SHARES OF FIRST SOLAR TO HOLD FROM BUY (FSLR; 110.83):

Fourth quarter EPS $1.61, vs. $0.77, is $0.19 above our estimate, as 116% gain in revenues beat our forecast and production cost was reduced to $0.98 per watt. We think FSLR's business has held up better than peers during this period marked by economic crisis and rising module supplies. But FSLR now speaks of very uncertain near-term outlook, especially for demand and customer inventories. We are cutting 2009 EPS estimate by $0.90 to $6.90, and start 2010 at $8.00. On worsening outlook, we also cut target price by $71 to $124, 18 times the 2009 estimate, still a premium to peers. -M. Jaffe

S&P LOWERS OPINION ON SHARES OF WYNN RESORTS TO STRONG SELL FROM SELL (WYNN; 22.00):

Adjusted fourth quarter EPS of $0.07, vs. $0.72, significantly misses our $0.53 estimate on a large Vegas shortfall. Bad luck accounted for some of the miss, with a table win of 15.3%, down from 23.5%, but non-casino revenues fell 17%. Occupancy dropped to 79.8% from 94.3%, with RevPAR down over 20%. We see WYNN's luxury positioning as a stigma in this environment and we believe WYNN is in a difficult place strategically, trying to balance premium positioning and occupancy and costs. We lower our 2009 EPS estimate to $0.54 from $2.42 and our target price to $18 from $40, a discount to peers. -E. Kwon-CFA

S&P RAISES OPINION ON SHARES OF DREAMWORKS ANIMATION TO BUY FROM HOLD (DWA; 18.57):

Fourth quarter EPS of $0.58, on 8% less shares, vs. $0.98, misses our estimate by $0.21. Shrek 3 comps and spending on new business ideas outweighed $0.12/share tax gain. With Madagascar 2 DVDs off to solid 2009 start and Kung Fu Panda's solid 11.2 million units so far, DWA's computer-generated family fare seems to buck the home-video slowdown. DWA affirms 3-D upside, as Monsters vs. Aliens set to hit over 2,000 domestic 3-D screens Mar. 27, en route to 7,000 for Shrek 4 in May 2010. On a higher weighted average cost of capital, we lower our DCF-based target price by $3 to $25. -T. Amobi - CPA, CFA

S&P LOWERS OPINION ON SHARES OF TJX COMPANIES TO HOLD FROM BUY (TJX 22.91):

January-quarter operating EPS of $0.55, vs. $0.64, exceeds our $0.50 estimate on effective expense controls. We look for TJX to weather a tough retail environment by sticking to its successful off-price merchandising strategy and by pursuing additional cost savings. But with forex likely to negatively impact the company's international sales/earnings, we reduce our FY 2010 operating EPS estimate by $0.15 to $1.85. We also lower our p-e-based 12-month target price by $1 to $24. With the stock's recent price increase, we now view TJX shares as fairly valued. -J. Asaeda

S&P MAINTAINS HOLD OPINION ON SHARES OF BANK OF AMERICA (BAC; 4.56):

According to a regulatory filing, Merrill Lynch, which BAC acquired at the end of 2008, posts losses for 2008 that are $533 million greater than expected. We don't believe the news will have a material affect on BAC's stock, as the shares have been weighed down to historically low levels amid fears that the company will be nationalized. While we view the Merrill acquisition as a long-term positive, we believe it will weigh on earnings in the short-term, largely through additional securities losses. BAC's low tangible equity ratio of 2.8% also gives us cause for concern. -S. Plesser

S&P DOWNGRADES SHARES OF NORTHROP GRUMMAN TO HOLD FROM BUY (NOC; 41.02):

Although we view NOC as a well-diversified military contractor, we are concerned that a ballooning budget deficit and shifting military priorities will mean budgetary cuts in large military programs. In particular, we see NOC's ships and aerospace segments as vulnerable to defense cuts. We are maintaining our 2009 EPS estimate of $4.70, but cut 2010's by $0.35 to $5.25. We are also lowering our 12-month target price by $11 to $45, on our view of significantly increased business risk. We still have a good outlook for NOC's information systems and electronics business units. -R. Tortoriello


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