S&P MAINTAINS HOLD OPINION ON SHARES OF LEHMAN BROTHERS (LEH; 30.61):
An unconfirmed story in the Wall Street Journal reports LEH may be seeking a capital infusion from foreign investors. We expect near-term pressure on the shares to continue, but we don't see a major liquidity crisis, considering LEH's unencumbered collateral and the availability of the Fed discount window. While a capital raise would dilute shareholdings significantly at these depressed prices, we think it would help soothe investors' nerves and improve LEH's leverage position. We are keeping our hold recommendation and 38 target price, based on a discounted multiple to peers. -M. Albrecht, T. Shafi
S&P RAISES OPINION ON SHARES OF UAL CORP. TO BUY FROM HOLD (UAUA; 8.47):
UAUA is cutting 100 aircraft, and 2009 capacity will be down 17%-18%. We think this is near the level needed to get yields up enough to suit this oil price environment. We also think oil could drop from current levels. We expect unit costs to rise on lowered capacity in the short term, but expect the capacity cuts to help revenue growth in 2009. We widen our 2008 estimate to a per-share $10.00 loss from $6.10, but keep 2009 at a $2.00 loss. We raise our 12-month target price 2 to 12, a 5.4 ratio on our 2009 estimate of enterprise value to EBITDAR, modestly above peers. -J. Corridore
S&P MAINTAINS HOLD OPINION ON HOVNANIAN ENTERPRISES SHARES (HOV; 8.34):
HOV posts April-quarter loss of $5.29, vs. a $0.49 loss, including pretax charges of $251 million related to land impairments and write-offs of goodwill and equity in joint venture investments, wider than our $1.00 loss estimate. Sales incentives led to $776 million in total sales, vs. $1.1 billion a year ago. Given HOV's reduced backlog, we see a 31% sales decline in fiscal year 2008 (October). We are widening our estimates for fiscal year 2008 to $9.25 per share loss from $4.40 loss, and fiscal year 2009's to $2.95 loss from $1.00 loss. Assuming 0.7 price-to-book, near other small homebuilders, we keep our $9.50 12-month target price. -K. Leon, CPA
S&P LOWERS OPINION ON SHARES OF J.M. SMUCKER TO BUY FROM STRONG BUY (SJM 55.11):
We have a generally favorable view of SJM's plan to pay $5/share special dividend and acquire Folgers coffee business from Procter & Gamble (PG; 65.88). The deal should add diversification and economies of scale, and we expect it to close in fourth quarter 2008, pending approvals. On a pro forma basis, before special costs, but with special dividend, we expect fiscal year 2009 (April) EPS would be similar to $3.47 that we estimate for SJM as currently constituted. Our downgrade largely reflects recent price appreciation, and we keep our target price of 60. Indicated dividend yield for SJM is 2.3%. -T. Graves, CFA
S&P MAINTAINS HOLD OPINION ON WILLIAMS-SONOMA SHARES (WSM; 24.99):
April-quarter EPS, before one-time items, of $0.05, vs. $0.17, misses our $0.03 estimate. Due to a weakening economy, comp-store-sales decline of 9% was weaker than our projection of a 7.5% drop. While we continue to favor WSM's strong brands and longer-term growth potential, we remain concerned by deteriorating housing market and soft consumer-spending trends. We are lowering our fiscal year 2009 (January) EPS estimate to $1.45 from $1.48, and fiscal year 2010's to $1.60 from $1.71, but are keeping our DCF-based target price at 26. With WSM trading at 17.2 times our fiscal year 2009 EPS estimate, we would not add to positions. -K. Leon, CPA, M. Souers