S&P DOWNGRADES SHARES OF FEDEX CORP. TO BUY FROM STRONG BUY (FDX; 84.33):
FDX posts May-quarter EPS of $1.45, vs. $1.90, missing our $1.50 forecast. The company says fuel surcharges are hurting demand and guides to fiscal year 2009 (May) EPS of $4.75-$5.25, based on no change in the economy or fuel prices. We are cutting our fiscal year 2009 EPS estimate to $5.34 from $6.38. We expect logistics stocks to start to move up in advance of improvement in the U.S. economy, but we think the risk of a longer downturn has risen. We are cutting our 12-month target price to 96 from 107, which is 18.0 times our new fiscal year 2009 EPS estimate, towards the low end of FDX's historical p-e range of 13.7-36.6. -J. Corridore
S&P DOWNGRADES SHARES OF FIFTH THIRD BANCORP TO SELL FROM HOLD (FITB; 12.73):
FITB announces it is cutting its quarterly dividend to $0.15 from $0.44, issuing $1 billion in convertible preferred shares, paring non-core businesses, and raising its expectation of net charge-offs to 160-165 basis points for 2008. We estimate that FITB will need $1.9 billion of loan-loss provisions in 2008, vs. $628 million in 2007; we are therefore reducing our 2008 EPS estimate to $1.35 from $2.32. Based on our concerns about declining credit quality, we are cutting our 12-month target price by 14 to 10, a below-peers 5.5 times our unchanged $1.84 2009 EPS estimate. -E. Oja
S&P KEEPS HOLD RECOMMENDATION ON SHARES OF MORGAN STANLEY (MS; 40.59):
May-quarter EPS of $0.95, vs. $2.24, is shy our $1.06 estimate. Strong wealth management results were offset by mortgage and loan write-downs and by hedging losses; asset sales added $1.4 billion to the top line. Advice and underwriting businesses continue to slow. Compensation costs were higher than we expected and non-comp costs rose with business volume. We think remaining mortgage exposure is less than peers, but that challenges remain. We lower our fiscal year 2008 (November) EPS estimate to $4.74 from $5.12 and our target price by 3 to 45, 1.4 times projected book value, in line with peers. -M. Albrecht
S&P REITERATES HOLD OPINION ON SHARES OF NORTHWEST AIRLINES (NWA; 6.78):
In response to rising oil prices, NWA announces cuts of 8.5%-9.5% to fourth quarter capacity, in the middle of the range of competitors' cuts. NWA says it does not expect any routes to be discontinued, which we view as a mistake. We think the attempt to get approval of the Delta (DAL; 5.70)/NWA merger has both companies' hands in efforts to reduce costs. While we think a merger would be beneficial, we don't think the companies can wait to get meaningful network capacity reductions. We are cutting our 12-month target price to 8 from 10, based on the recent further rise in oil prices. -J. Corridore
S&P RAISES RECOMMENDATION ON SHARES OF GENERAL MILLS TO BUY FROM HOLD (GIS; 62.35):
GIS's expectation of May-quarter EPS, before special items, of $0.73 tops our estimate by $0.05. We are impressed by a 13% sales increase. We are raising our fiscal year 2008 (May) EPS estimate to $3.52 from $3.48, which excludes a $0.19 benefit from non-cash items but includes some special items (restructuring-related). Also, we are raising our fiscal year 2009 EPS estimate to $3.84, slightly above GIS's top of guided range, from $3.79. We increase our 12-month target price to $70 from $63, which puts target p-e closer to average for other food stocks. Indicated dividend yield is about 2.6%. -T. Graves-CFA