S&P REITERATES BUY RECOMMENDATION ON SHARES OF HOME DEPOT (HD; 26.75):
July-quarter EPS of $0.71, vs. $0.77, is $0.08 higher than our estimate, driven primarily by cost control we view as impressive. Comp-store sales declined 7.9%, slightly better than our projection of a 9.0% decline, as sales benefited from the fiscal stimulus tax rebates. While sales comparisons should ease in the back half of fiscal year 2009 (January), we expect continued weakness in housing along with overall consumer malaise. On strong July-quarter results, we are raising our fiscal years 2009 and 2010 operating EPS forecasts to $1.75 and $1.78 from $1.72 and $1.77, but keep our $34 DCF-based target price. -M. Souers
S&P KEEPS HOLD RECOMMENDATION ON SHARES OF LEHMAN BROTHERS (LEH; 14.22):
An unconfirmed report in The Wall Street Journal suggests that LEH is shopping all or part of its asset management unit to offset potential losses in the third quarter. It also says that the firm is considering the sale of a sizeable chunk of troubled real estate assets. We believe the sale of the entire asset management business would impair long-term earnings power, and we would prefer it to monetize a portion of that business to be able to participate in future profits. We would applaud a mortgage-related asset sale, which would provide some additional clarity. -M. Albrecht
S&P REITERATES STRONG SELL OPINION ON SHARES OF WELLCARE HEALTH PLANS (WCG; 44.02):
WCG agrees to pay $35.2 million to the U.S. Attorney, with $24.5 million its estimate of the behavioral health capitation refunds it owes Florida Medicaid for 2002-2006, and $10.7 million to be held in escrow for other claims. The payment is not a settlement, and we see risk of fines, penalties, and Medicaid contract losses dependent on government probe results, which are still underway. We also see its long-term Medicare Advantage growth prospects limited. Separately, given last week's SEC filing, we cut our 2008 EPS estimate by $1.75 to $2.75, but keep our $23 target price. -P. Seligman
S&P KEEPS HOLD RECOMMENDATION ON SHARES OF MEDTRONIC (MDT; 54.14):
July-quarter operating EPS of $0.72, vs. $0.62, is a penny above our estimate, three cents higher than Street. Currency-neutral sales growth was modestly below our forecast. We view MDT's core spinal business as soft, and think competitive pressures will remain. Diabetes also looked light relative to our estimate. Conversely, cardiovascular was better than expected, as was Physio-Control, and cardiac rhythm management was in line. We continue to look for fiscal year 2009 (April) free cash flow of about $3.0 billion. We maintain our fiscal year 2009 EPS forecast at $3.00, fiscal year 2010's at $3.40, and our target price at $55. -R. Gold
S&P MAINTAINS HOLD OPINION ON SHARES OF CME GROUP (CME; 335.01):
Shareholders of both firms have approved CME's acquisition of NYMEX Holdings (NMX; 80.10). The transaction should give CME control over futures trading for oil and metals, where some core product lines have shown slower growth recently. Notably, CME recently reported that July trading volume declined 1% while Nymex volume was up 30%, reflecting strong demand for crude oil futures. We believe that since then, trading volume for crude oil has waned. We maintain our $410 target price, below a historical 19.5 times our 2009 EPS estimate of $21. -S. Plesser