Markets & Finance

S&P Picks and Pans: AIG, GM, Safeway, JPMorgan, Williams-Sonoma


Analysts' opinions on stocks in the news Thursday

From Standard & Poor's Equity ResearchS&P MAINTAINS HOLD RECOMMENDATION ON SHARES OF AMERICAN INTERNATIONAL GROUP (AIG; .55):

According to an unconfirmed report in the Financial Times, AIG and U.S. authorities are in discussions to execute a "controlled breakup" of AIG under which the government would swap its 79.9% equity stake in AIG for large stakes in AIG's foreign life, Asian operations and U.S. personal lines units in exchange for relaxed loan terms. Under this proposal, the remaining assets (presumably including the commercial lines business) would remain with the holding company. We keep our $0.50 target price, which is our lowest available target price. -C. Seifert

S&P KEEPS SELL OPINION ON SHARES OF GENERAL MOTORS (GM; 2.52):

GM posts an adjusted loss per share of $9.65, vs. year-ago EPS of $0.08, worse than our $6.95 loss projection, despite sales in line. This quarter, in our view, just fills in the gap missing in the recently filed viability plan. It reinforces for us the notion that GM will need multi-billion dollar government assistance to continue as a going concern. We note GM's negative shareholder's equity widened to $86 billion at year-end. Given the industry and supply base troubles, GM could very well use more than its projected adjusted automotive operating cash outlflow of $14 billion in 2009. -E. Levy-CFA

S&P REITERATES HOLD RECOMMENDATION ON SHARES OF SAFEWAY INC (SWY; 18.78):

SWY reports fourth quarter EPS of $0.79, vs. $0.68, $0.02 below our estimate. Identical-store sales rose 0.4%, below our 2.8% expectation. Results were aided by a lower tax rate, benefits from a share buyback program, and one additional week in the quarter, but were hurt by narrower margins. We see continued margin pressure as the company reduces prices to stimulate demand in the weak economic environment. As a result, we reduce our 2009 EPS estimate by $0.06 to $2.34, the low end of SWY's $2.34-$2.44 guidance, and lower our 12-month target price $4 to $22, on comparative and p-e analyses. -J. Agnese

S&P REITERATES HOLD RECOMMENDATION ON SHARES OF JPMORGAN CHASE & CO (JPM; 23.56):

An unconfirmed Wall Street Journal story says JPM may sell Bear Wagner Specialists, a NYSE market maker acquired in its takeover of Bear Stearns, to Barclays Capital (BCS; 5.93). JPM likely views the firm as a non-core operation, and we think it will not fetch a premium price. However, the divestiture could free up capital committed to the business. Separately, in an investor day presentation, the company disclosed it will reduce headcount by 12,000 as it integrates Washington Mutual operations, and says it expects to be profitable in first quarter 2009. -S. Plesser, M.Albrecht

S&P LOWERS RECOMMENDATION ON SHARES OF WILLIAMS-SONOMA TO STRONG SELL FROM HOLD (WSM; 9.07):

We are lowering our January-quarter EPS estimate by $0.08 to $0.14, ahead of results expected on 3/26, since we now project a same-store sales decline of 28%. We expect comps to decline an additional 14% in fiscal year 2010 (January), and note that sales of home furnishings will lag a recovery in the housing market. While cost-cut efforts will help, we continue project significant expense de-leverage. As a result, we are lowering our fiscal year 2009 operating EPS estimate to $0.16 from $0.25, and fiscal year 2010's to a net loss of $0.16 from EPS of $0.09. We also cut our 12-month DCF-based target price by $3 to $7. -M. Souers


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