S&P MAINTAINS HOLD RECOMMENDATION ON SHARES OF LEHMAN BROTHERS (LEH; 7.25):
Update: An unconfirmed story from the Associated Press reports that LEH has reached out to other large financial institutions about a potential acquisition of, or investment in, the company. We think this assertion is supported by Chief Executive Richard Fuld's comments in a conference call yesterday that LEH is open to strategic alternatives, and that today's sharp decline in the stock price may have management acting on that possibility earlier than it had hoped. We believe some type of capital raise or transaction must be consummated quickly to improve confidence in LEH. -M. Albrecht
S&P KEEPS HOLD RECOMMENDATION ON SHARES OF MERRILL LYNCH (MER; 20.06):
We believe the stock is being pressured today by ongoing concerns about Lehman Brothers and renewed fears in the market that writedowns will continue at financial institutions. MER remains exposed to additional writedowns through its exposure to CDOs and to residential and commercial mortgages. But July actions to reduce CDO positions and shore up its capital base have improved its outlook, in our view. We remain cautious on the firm's shares on prospects of further writedowns, but we think MER remains well capitalized, and would hold, but not add to, positions. -M. Albrecht
S&P REITERATES HOLD OPINION ON SHARES OF WASHINGTON MUTUAL (WM; 1.79):
Shares are down today on what we believe are doubts about WM's viability. We are concerned by WM's exposure to home equity and option-ARM loans, but we still believe that the company has an extensive branch network and banking franchise that could be attractive to a potential buyer. We think WM will dilute current shareholders if it has to raise capital later this year. We believe that the shares reflect these concerns at current prices, and we keep our hold recommendation. -K. Cole-CFA
S&P UPGRADES RECOMMENDATION ON SHARES OF CSX CORP. TO BUY FROM HOLD (CSX; 58.74):
CSX raises 2008 EPS guidance to $3.65-$3.75 from $3.40-$3.60, based on lower diesel fuel prices and surcharge "catch-up." Although carloadings are still tracking negative in the third quarter through Sept. 8, with weak autos and construction materials, coal continues to be strong and CSX is accelerating ownership in those rail cars. We raise our 2008 EPS estimate by $0.20 to $3.72, and 2009's by $0.22 to $4.19, reflecting not just fuel, but also share buybacks and an expected stabilizing of overall volumes. After updating our DCF and relative valuations, we raise our target price by $2 to $69. -K. Kirkeby-CFA
S&P MAINTAINS HOLD RECOMMENDATION ON SHARES OF ALLERGAN (AGN; 60.36):
We are encouraged that AGN garnered positive results from two Phase III trials of Botox for treating migraine headaches. The number of headache episodes were not reduced, but their length declined sharply. AGN expects to apply to the FDA on Botox for migraines in mid-2009. We believe some doctors already use Botox off-label for headaches. But we think the market for Botox, approved for certain neuromuscular disorders, will expand markedly with FDA approval to treat migraines. AGN estimates 1.2-3.6 million people in the U.S. suffer migraine headaches. We expect an FDA decision in 2010. -P. Seligman