S&P DOWNGRADES OPINION ON ZIMMER SHARES TO HOLD FROM BUY (ZMH; 79.56):
ZMH voluntarily recalled certain orthopedic surgical products (OSP) and suspended the manufacturing of certain OSP products at its Dover, Ohio facility due to quality control issues. We do not believe any safety issues are involved, and see no impact on core hip and knee implant businesses. But ZMH says 2008 revenues will be negatively impacted by $70-$80 million. Assuming $80 million in lost sales, we lower our 2008 EPS forecast by $0.10 to $4.15, and our 12-month target price by $2 to $83. With the shares up 20% in 2008 and near our target price, we would no longer buy the stock. -R. Gold
S&P DOWNGRADES OPINION ON SHARES OF RIVERBED TECHNOLOGY TO HOLD FROM BUY (RVBD; 13.80):
RVBD sees first quarter revenue of $72-$73 million with EPS at $0.08-$0.10, below the $80 million and $0.12 we had estimated, reflecting a more cautious IT spending market that led to a longer sales cycle and the deferral of some larger transactions. While we see a large and relatively untapped market opportunity for wide area data services, we remain wary that a more difficult macroeconomic environment will limit near-term demand. We are lowering our 2008 EPS estimate by $0.10 to $0.35. And based on revised relative analysis, we cut our 12-month target price by $8 to $17. -A. Bensinger
S&P MAINTAINS BUY OPINION ON SHARES OF VERIZON COMMUNICATIONS (VZ; 38.07):
VZ held a call to discuss its long-term wireless network initiatives to capture stronger data/video service revenues following its $9.4 billion in total successful bids in recent spectrum auction. We contend that the spectrum will be helpful as VZ begins to migrate to a 4G LTE network in 2010 from existing CDMA network, and leverages wireless partner Vodafone (VOD; 32.16). As we expected, VZ will not subsidize or support any open-access devices, but customers will be able to use retail services. Even with new initiatives, we expect VZ's capital spending growth to moderate over long-term. -T. Rosenbluth
S&P MAINTAINS STRONG SELL OPINION ON CLASS B SHARES OF CBS (CBS; 22.41):
We remain somewhat cautious on long-term prospects of CBS's start-up movie studio, as WSJ reports on ramp-up of previously announced plans. With small- to mid-range film budgets, we note CEO Moonves has downplayed potential risk of studio, which admittedly could offer some key diversification benefits, and provide some content leverage for affiliate Showtime network as it nears expiration of its current output deals with major studios. Still, with an ever-rising number of films crowding the market, we are wary of hit-driven business that could add to CBS's earnings volatility. -T. Amobi - CPA, CFA
S&P UPGRADES HOMEBUILDERS SUB-INDUSTRY TO NEUTRAL FROM NEGATIVE OUTLOOK:
Our neutral industry outlook is dependent on the housing market's ability to reduce home inventory. In our opinion, resale pricing has lagged the sharp decline in new home prices, but we believe homeowners are reducing prices 5% or more in 2008 to sell their homes. We think proposed federal legislation to aid the industry may provide a windfall in tax refunds to the depressed homebuilding industry. Improved balance sheets with growing available cash should enable most of the top builders to take advantage of reduced land prices ahead of a potential housing market recovery. -K. Leon-CPA