S&P MAINTAINS BUY RECOMMENDATION ON SHARES OF GOLDMAN SACHS (GS; 151.02):
February-quarter EPS of $3.23, vs. $6.67, beats our $2.82 estimate, as strong asset management and securities services revenues offset declines in investment banking and trading operations. GS had losses on principal investments. Equity trading volume helped commissions but drove brokerage costs higher. We note the company's investment banking backlog has weakened, which we think is consistent with peers' experiences. We are raising our fiscal year 2008 (November) EPS estimate by $0.52 to $15.91, but cutting our target price by $25 to $175, 1.7 times projected book value, a premium to reduced peer multiples. -M.Albrecht
S&P MAINTAINS SELL OPINION ON SHARES OF LEHMAN BROTHERS (LEH; 31.75):
February-quarter EPS of $0.81, vs. $1.96, misses our $1.06 estimate. Relative strength in investment banking and investment management offset significant declines in the capital markets segment that were due to net write-downs of $1.8 billion on mortgage positions and lending commitments. Compensation and brokerage costs were higher than we expected. We believe LEH currently has adequate liquidity. We are lowering our fiscal year 2008 (November) EPS estimate by $0.52 to $4.30, but raising our target price by $10 to $30, 0.7 times projected book value, a discount to reduced peer multiples due to our funding concerns. -M.Albrecht
S&P REITERATES HOLD OPINION ON SHARES OF NORTHWEST AIRLINES (NWA; 8.92) AND DELTA AIR LINES (DAL; 9.27):
The pilots group for Delta has said it can't reach an agreement with Northwest pilots on seniority lists. Given DAL management's statements that it will not merge unless its pilots seniority is protected, we now think it unlikely that DAL and NWA will merge. We expect DAL and NWA to cut capacity and attempt further fare hikes to offset rising fuel costs, but the real long-term savings would have been in a merger. We are cutting our 2008 EPS estimate on NWA to $0.90 from $1.50, and our 12-month target price to $10 from $21, 11 times our new 2008 EPS estimate, in line with peers. We cut our 2008 EPS estimate for DAL to $0.65, from $1.25, and our 12-month target price by $8, to $10, 15 times that estimate, above peers. -J.Corridore
S&P MAINTAINS HOLD RECOMMENDATION ON SHARES OF NYSE EURONEXT (NYX; 56.46):
NYX announces a $1 billion share buyback program and a rise in its annual common dividend to $1.20 a share from $1.00. We view these moves favorably as they may signal that NYX is less likely to pursue a large, likely dilutive acquisition in the futures market. The company also announced an agreement with the Abu Dhabi Securities Market whereby NYX will provide infrastructure and technology to ADSM and explore the development of new trading ventures. We are cutting our 12-month target price to $65 from $80, to reflect lower peer multiples. -J.Willey
S&P REITERATES NEGATIVE OPINION ON HOMEBUILDING SUB-INDUSTRY:
Both housing starts and building permits for February point to weaker demand in 2008 for homebuilders' future home closings. In our view, the industry continues to implode from record starts in 2005. February housing starts fell 28.4% to a seasonally adjusted annual rate of 1.06 million, which includes single-family and multi-family units. With building permits falling 7.8% in February compared to January data, we see further price declines as excess unsold inventory hinders market stability. One positive trend has been the easing of asset impairments taken by builders in the December-quarter vs. September-quarter. -K. Leon, CPA