MERRILL DOWNGRADES LEHMAN BROTHERS TO NEUTRAL FROM BUY
Merrill Lynch analyst Guy Moszkowski says he clearly doesn't like removing his buy rating from Lehman Brothers (LEH) just a week after putting it in place, at a price 10% lower, but seems clear to him now that move to buy was premature.
Moszkowski says the magnitude of pre-announced second quarter loss and associated capital raising (both considerably greater than his expectations) indicate weaker ROE potential, and after careful reconsideration of Lehman's various exposures and hedging issues, he has less confidence than he would need for buy rating.
He expects Lehman to survive because its liquidity profile is strong and the Fed discount window is open. But he thinks its current business and asset mix are just not well positioned for the current environment.
JP MORGAN DOWNGRADES ALCOA TO NEUTRAL FROM OVERWEIGHT
JP Morgan analyst Michael Gambardella says he downgrades Alcoa (AA) as he believes the market will be disappointed with both the strategic direction from the new CEO, Klaus Kleinfeld, and the company's near-term earnings due to higher-than-expected input costs.
He says, while the market appears to be discounting a sale of the company or at least some sort of spinoff to separate its upstream from its downstream businesses, he believes both of these assumptions are incorrect. Instead, he thinks AA will not only remain a conglomerate but that it is also likely to grow both its upstream and downstream businesses organically and even through acquisitions.
JP MORGAN DOWNGRADES MICROCHIP TECHNOLOGY TO NEUTRAL FROM OVERWEIGHT
JP Morgan analyst Christopher Danely says he's downgrading Microchip Technology (MCHP) due to a slowdown in the Chinese consumer end market and the stock's high valuation.
Danely notes the slowdown stems from the earthquake centered in the Szechwan province, and is affecting nearly every company throughout the technology supply chain that he's visited during his trip to Asia this week. He says most companies are hopeful demand will stabilize and improve just before the Olympic Games in late July/early August.
He recommends taking profits on MCHP, as the stock has appreciated 14% year to date.
He lowers $1.63 fiscal year 2009 (March) EPS estimate to $1.58, $1.85 fiscal year 2010 to $1.77; $1.12 billion fiscal year 2009 revenue to $1.10 billion, and $1.24 billion fiscal year 2010 to $1.20 billion.
ST ROBINSON HUMPHREY DOWNGRADES CENTRAL GARDEN & PET
ST Robinson Humphrey analyst William Chappell says he downgrades Central Garden & Pet (CENT ) due to: headwinds impeding the company's turnaround and his reduced confidence in its stability to pass off timely price increases to offset margin compression.
Chappel notes that the company said it has low confidence in exceeding last year's EPS of $0.45 in fiscal year 2008 (September) due to raw material inflation. He says he had thought his $0.53 fiscal year 2008 EPS estimate was highly attainable, but spiking grain and other oil related production costs have continued to pressure the company.
He says it now appears the company is having trouble keeping pace with inflation through price increases, a concerning trend. He cuts fiscal year 2008 EPS estimate to $0.42 and fiscal year 2009 to $0.60.