S&P MAINTAINS HOLD RECOMMENDATION ON SHARES OF LEHMAN BROTHERS (LEH; 37.64):
LEH announces it will issue at least $3 billion in convertible preferred securities; terms not disclosed. We believe the company is working to reduce its leverage by raising capital, but we are concerned about the dilution this will cause to common shareholders. We are encouraged by LEH's comments that there has been significant interest by investors, but we suspect some investors may take this move as a sign of illiquidity rather than an opportunistic chance to raise capital. We are keeping our hold opinion and our $47 target price, based on a discounted multiple to peers. -M.Albrecht
S&P LOWERS RECOMMENDATION ON SHARES OF MCDONALD'S TO BUY FROM STRONG BUY (MCD; 56.75):
We think the recent downshift in economic growth in certain key foreign markets suggests less upside potential to the growth contribution we expect from international operations to MCD's future results. A key premise of our previous strong buy opinion was expectations for strong international growth. With somewhat less upside to our $64 target price after gains in MCD's share price since its late January low, our slightly less positive international outlook leads us to expect more modest future gains in MCD shares than their 26% appreciation over the last 12 months. -M.Basham
S&P DOWNGRADES OPINION ON SHARES OF CHIPOTLE MEXICAN GRILL TO HOLD FROM BUY (CMG; 117.90):
We are downgrading CMG to reflect less compelling valuation after the recent rise in the share price from their early-March lows, coincident with lows in the overall market. Earlier, CMG shares had sold off substantially from their late 2007 high of $155, after the company reported fourth quarter 2007 EPS that did not significantly exceed its guidance, as it had in prior quarters. While the federal fiscal stimulus plan may provide a boost to second and third quarter discretionary spending, we do not see any additional factors that are likely to significantly boost CMG much past our $120 12-month target price. -M.Basham
S&P LOWERS RECOMMENDATION ON SHARES OF MARRIOTT INTERNATIONAL TO HOLD FROM BUY (MAR; 36.01):
We think U.S. hotel room demand weakened notably in March. While we do not expect demand to decline significantly for full 2008, nearly flat demand is likely to pressure occupancy rates, particularly with supply set to rise 2.0%-2.25%. We believe leisure rates have become more promotional, and that corporate accounts have also been able to negotiate better prices. We think this is most likely to show up in lower year-end incentive fees to MAR. We lower our 2008 and 2009 EPS ests by $0.05 each, to $1.95 and $2.05, and cut our enterprise value/EBITDA-based target price by $3 to $39. -M.Basham
S&P REITERATES HOLD RECOMMENDATION ON SHARES OF DELL (DELL; 20.15):
DELL announces more steps in its ongoing efforts to cut costs, including the closure of its desktop PC plant in Austin, Texas. We view the company as being almost halfway toward its goal of 8,800 global staff cuts. While we see potential for efficiency gains through reorganization, we also see pressure on sales from market shifts to laptops from desktops, moderating PC sales trends in DELL's main territory (the U.S.), and more industry competition on PC design and price. On balance, we are maintaining our fiscal year 2009 (January) EPS estimate of $1.55 and our 12-month target price of $22. -T.Smith,CFA
S&P REITERATES STRONG BUY RECOMMENDATION ON SHARES OF IBM (IBM; 116.75):
The company announces temporary suspension from new business with U.S. federal agencies following an Environmental Protection Agency investigation of an IBM bid for EPA business submitted in March 2006. IBM plans to challenge the suspension and its scope. We believe this news introduces some risk to IBM's reputation, but with existing federal business continuing, and with our estimate of revenues from federal contracts as small, about 1%-2% of 2008 revenues, we are maintaining our 2008 EPS estimate of $8.25. We also keep our p-e-based 12-month target price of $140. -T.Smith,CFA