CITIGROUP CUTS YAHOO TO SELL FROM BUY
Citigroup analyst Mark Mahaney says he sees Yahoo (YHOO stock down materially today. He says Yahoo will remain in play, either on belief that Microsoft (MSFT) will come back or another bidder emerges. He believes Yahoo's outlook is uncertain: first quarter again highlighted mixed fundamental trends and substantial competition risks from Google (GOOG), but still strong secular growth.
Mahaney cuts 34 price target to 26. He says Yahoo's aggressive R&D strategy us correct, though he remains skeptical of its ability to execute against it. He notes if successful, the shares will organically end up higher or acquirer will be buying it at higher price than $33.
He believes Microsoft's options for addressing scale/liquidity challenge of its Internet ad platform are very limited.
FRIEDMAN BILLINGS DOWNGRADES COUNTRYWIDE FINANCIAL
On Friday, S&P ratings downgraded Countrywide Financial's (CFC) debt to junk after Bank of America (BAC) said in filing there is no assurance that any of CFC's debt will be redeemed, assumed or guaranteed. Friedman Billings analyst Paul Miller cuts his opinion on Countrywide shares to underperform from market perform.
He says that given continued deterioration in CFC's loan book and weak pricing for non-agency loans in the secondary market, BAC could face $20-$30 billion of loan write-downs when it closes the CFC deal. He says BAC will likely renegotiate transaction down to the $0 to $2 level and force CFC's bond holders to absorb remainder of potential write-downs.
Miller thinks BAC should completely walk away from the CFC deal, as CFC's loan portfolio will prove a drag on earnings and could force BAC to raise additional capital.
UBS FINANCIAL DOWNGRADES AMERICAN CAPITAL STRATEGIES TO SELL FROM NEUTRAL
UBS Financial analyst Ajay Jain says the pending implementation of FAS 157 is likely to have a material impact on asset valuations at American Capital Strategies (ACAS). He notes FAS 157 (effective Jan. 1, 2008) assigns explicit fair-market valuation methodologies for specific asset categories. He says, traditionally, ACAS considered the cost (entry) basis in valuing recent investments.
As such, Jain believes the company has more downside risk to net asset value compared to peer group. He notes ACAS has already factored a recession into its 2008 busiiness plan.
He says, with nonaccruals on the rise, he is concerned deterioration in underlying credit quality may further impact 2008 EPS. He cuts $3.37 2008 EPS estimate to $3.26, and 34 price target to 28.