S&P MAINTAINS HOLD OPINION ON SHARES OF WASHINGTON MUTUAL (WM; 6.06):
We have heightened concerns about WM's exposure to option-ARM and home equity loans, respectively about roughly 23% and 25% of WM's loan portfolio. We have advanced our assumptions for option-ARM loan resets and for losses in order to reflect the significant housing price declines in the California market, where WM's loans are concentrated. We widen our 2008 per-share loss forecast by $2.07 to $4.32, and lower our 12-month target price by 5 to 7, roughly 0.3 times book value, below peers to reflect our view of WM's riskier loan book. -K. Cole, CFA
S&P REITERATES HOLD RECOMMENDATION ON SHARES OF NORTEL NETWORKS (NT; 8.62):
At its investor meeting, Nortel confirms its 2008 outlook for low-single-digit revenue growth, gross margins at 43%, and an approximate 300 basis point improvement in operating margins. We think NT is making good progress on profitability, with superb pricing discipline and measurable restructuring actions. However, we remain disappointed by its below-industry-average sales growth profile. With demand for its legacy mobility solutions slowing, we believe NT needs to better position itself for new growth opportunities for next generation IP-based transport. -A. Bensinger
S&P REITERATES BUY RECOMMENDATION ON SHARES OF STAPLES (SPLS; 23.15):
Dutch office goods supplier Corporate Express (CXP; 14.00) has accepted a buyout offer from SPLS at €9.25 ($14.36) per share, for a total transaction valued at about $2.65 billion. Corporate Express will withdraw its bid for privately-held French competitor Lyreco. We expect the proposed deal to receive shareholder approval, and expect the transaction to close in July. We believe meaningful cost synergies will be realized, given overlap of operations in the U.S. In addition, we view as positive that the acquisition will establish a contract-delivery business for SPLS in Europe. -M. Souers
S&P REITERATES HOLD RECOMMENDATION ON SHARES OF ALVARION (ALVR; 7.96):
ALVR enters into a joint strategic agreement with Nortel Networks (NT; 8.54) to offer end-to-end WiMAX solutions. We believe the deal indicates ALVR's time-to-market advantage over peers in WiMAX technology development. We see the company benefiting from increased economies of scale and access to NT's large sales and service support organization. While we question the long-term viability of such a partnership, given NT's commitment to competing 4G LTE technology, we see the agreement providing ALVR with incremental revenue opportunities over the near term. -A. Bensinger
S&P UPGRADES OPINION ON VARIAN MEDICAL SHARES TO STRONG BUY FROM BUY (VAR; 47.64):
Following yesterday's analyst meeting, we have increased confidence in our financial projections and believe recent concerns regarding reduced spending by hospital customers are overblown. VAR noted that it has not seen any sales lost due to credit market conditions, and forecast 11%-12% growth in the oncology business despite lower reimbursement. We think VAR remains in growth mode with new product launches, rising sales in the security segment and a strong order backlog. We keep our fiscal year 2008 (September) sales estimate at $2.05 billion and see EPS of $2.12. Our target price is 57. -R. Gold
S&P INITIATES COVERAGE ON ADSS OF LDK SOLAR WITH A HOLD RECOMMENDATION (LDK; 37.50):
We project significant revenue gains for LDK on robust industry growth and the company's aggressive expansion plans. We expect it will have production capacity of 1.1 gigawatts by the end of 2008 and 2 gigawatts by the end of 2009. We see LDK's strategy of producing polysilicon internally widening margins considerably in next year. While we project polysilicon production at 5,000-7,000 metric tons for 2009, we are wary of potential execution issues. We initiate our 2008 EPS estimate at $1.68 and 2009's at $3.81. Our 12-month target price of 45 reflects a peer-discount p-e. -A. Zino, CFA