NEEDHAM CUTS YAHOO TO HOLD FROM BUY
Needham analyst Mark May says Yahoo (YHOO) shares fell 10% yesterday on news that it ended talks with Microsoft (MSFT); the shares are off 29% since mid-February, trading 40% below Microsoft's $33 offer.
May estimated the likelihood of an acquisition by Microsoft at 50%, which proved overly optimistic. He says Yahoo's board is forced to extract value some other way, and the result was a commercial ad deal with Google (GOOG).
While he notes that Yahoo expects the deal and other unspecified enhancements to add $250-$450 million in incremental operating cash flow annually, he thinks the deal diminishes Yahoo's relevance among advertisers and strengthens the hand of key competitor (Google); the deal could face regulatory headwinds; there is uncertainty that target financial gains can be recognized.
BMO DOWNGRADES FIFTH THIRD BANCORP TO MARKET PERFORM FROM OUTPERFORM
BMO analyst Peter Winter says he believes net charge-offs at Fifth Third Bancorp (FITB) will come in higher than management's forecast and more aggressive reserve building will be needed.
Winter notes housing conditions and overall economy have gotten much worse since Mar. 31. He also expects FITB will cut its dividend by at least 50% and possibly will need capital infusion as he projects tangible common equity ratio falls below 5.9% by yearend even with dividend cut, reflecting higher credit costs.
He cuts 2008 and 2009 EPS estimates to $1.62, $1.95 from $1.93, $2.27, respectively. He believes stock will trade at a slight discount to its book value until issue of capital adequacy is resolved.
COWEN RAISES ESTIMATE FOR SMITH & WESSON
Cowen analyst Cai von Rumohr sayes Smith & Wesson (SWHC) $0.08 fourth quarter EPS is $0.02 above consensus, as impressive 12% gain in sporting channel handgun sales and higher tactical rifles sales offset weak hunting volume due to still-excessive dealer inventory. He says free cash flow (FCF) hit a healthy $13 million; he thinks the quarterly results would have been even better but for delayed shipment of about $2-$3 million in export sales into fiscal year 2009 (April).
He notes encouraging dealer comments about handgun demand, May background checks grew 9%. He believes the company's fourth quarter comments about new rmarkets suggest it's looking for possible acquisition(s).
He raises $0.28 fiscal year 2009 EPS estimate to $0.35. But he notes the company's unwillingness to resume guidance; he keeps neutral opinion.