S&P MAINTAINS HOLD OPINION ON SHARES OF WACHOVIA (WB; 27.81):
WB shares are lower in premarket as the company preannounces a first quarter operating loss of $0.14, vs. EPS of $1.20, $0.54 below both our estimate and consensus. WB also plans to raise roughly $7 billion in capital through a preferred issuance and will reduce its quarterly dividend to $0.375 per share from $0.64, preserving $2 billion in capital annually. The capital raise follows a larger-than-expected reserves build of $2.8 billion in the first quarter, vs. $1.5 billion in the fourth quarter. Even so, WB's allowance currently totals a below-peer 84% of non-performing loans. -S. Plesser
S&P REITERATES HOLD RECOMMENDATION ON SHARES OF CIRCUIT CITY (CC; 5.10):
CC has received an unsolicited offer from Blockbuster (BBI; 2.79, NR) to acquire CC for $6 to $8 per share in cash, for a total transaction value of up to $1.3 billion. We are somewhat skeptical regarding the financing of this proposed transaction, since it would likely entail the issuance of BBI equity. However, we believe the offer sets a new near-term floor on CC shares, and we think other potential suitors may emerge. We are raising our target price to 6 from 5.50, based on the low price point of the proposal. -M. Souers
S&P REITERATES HOLD OPINIONS ON SHARES OF NORTHWEST AIRLINES (NWA; 10.96) AND DELTA AIR LINES (DAL;10.01):
Unconfirmed reports from the AP and numerous other media outlets, state that Delta and NWA are again close to announcing a merger agreement. Though DAL pilots have reportedly agreed to waive certain contract provisions to allow a deal, NWA pilots have not. We think it is far from certain that a deal will go through. However, we are positive on the benefits to the industry of capacity reductions from a combination, which we think would spur other consolidations. We see a long and complex process to close the deal and integrate a merger, should it occur at all. -J. Corridore
S&P REITERATES HOLD RECOMMENDATION ON SHARES OF SCOTTS MIRACLE-GRO (SMG; 33.54):
SMG sees lower EPS for March-quarter than had been expected, reflecting a late spring season start in many U.S. regions. However, it reaffirmed its full-year fiscal year 2008 (September) outlook, believing the shortfall will be made up in the second half. We see 7% sales growth for fiscal year 2008, driven by strength in the global consumer business and new products. In our view, supply chain cost savings should benefit margins. We are cutting our March-quarter EPS estimate by $0.15, to $1.15, but keeping our $2.30 fiscal year 2008 projection. Blending our relative and DCF metrics, we keep our 12-month target price at 37. -S. Scharf
S&P REITERATES BUY OPINION ON SHARES OF GRAINGER (GWW; 83.76):
GWW posts first quarter EPS of $1.43, vs. $1.17, $0.03 above our estimate, as share buybacks added $0.06. Sales rose 7%, driven by growth in Mexico and Canada, and higher market share in the expanding branch-based business in North America. We see more growth in light manufacturing, while sales to retail and heavy manufacturing customers continue to slow. Margins should widen on better mix and supply chain costs savings. Given aggressive share buybacks, we are lifting our 2008 EPS estimate by $0.15 to $5.90. Based on relative and DCF metrics, we are keeping our 12-month target price at 95. -S. Scharf