S&P MAINTAINS HOLD RECOMMENDATION ON SHARES OF LEHMAN BROTHERS (LEH; 4.22):
An unconfirmed report in the Wall Street Journal suggests that LEH is in talks with a variety of potential acquirers, and the government may be helping to resolve the issue. We believe a deal could be consummated over the weekend. In our opinion, LEH offers a potential acquirer valuable trading, advice and asset-management operations, but any acquirer would have to have sufficient capital to absorb potential real estate-related losses. We continue to believe LEH must get some type of deal done soon to head off the crisis of confidence we think it is facing. -M. Albrecht
S&P MAINTAINS SELL OPINION ON SHARES OF BANK OF AMERICA (BAC; 33.01):
According to an unconfirmed Financial Times article, BAC is part of a consortium that is planning to bid on Lehman Brothers. This would imply that BAC could purchase only a portion of LEH's assets. After further analysis, we believe that there is enough of a safety margin between LEH's current book value and current equity valuation to make a deal worthwhile even without government backing. BAC could benefit not only from an attractive purchase price but also from the diversification of its revenue stream as well as further international exposure. -S. Plesser
S&P MAINTAINS HOLD RECOMMENDATION ON SHARES OF AMERICAN INTERNATIONAL GROUP (AIG; 17.55):
The shares of this multi-line insurer are indicated to open lower today. We attribute this to concerns about AIG's ability to shed its troubled mortgage-related assets and we expect the shares to remain volatile as investors await news from the company, which is expected on Sept. 25 at an investment community meeting. We believe AIG has a number of important franchises, but we would not add to positions until greater clarity regarding its next move emerges. We are cutting our 12-month target price by $3 to $20, assuming shares remain discounted to historical averages. -C. Seifert
S&P RAISES RECOMMENDATION ON SHARES OF FANNIE MAE TO HOLD FROM SELL (FNM; 0.75):
While we expect any future capital injections by the Treasury Department will be highly dilutive to current shareholders, we do not see the Treasury needing to inject additional capital into FNM through the rest of 2008, and we believe this lack of action could be viewed positively by investors. As of the end of the second quarter, FNM had $47.0 billion in core capital. Also, we think the shares could appreciate from historically low levels if we see any stabilization in the housing market. We are raising our target price from $0.50 to $1, or less than 0.1 times book value. -K. Cole-CFA
S&P MAINTAINS SELL OPINION ON SHARES OF CHIPOTLE MEXICAN GRILL (CMG; 59.43):
The shares are down 16% this morning, as CMG notes that the weakening economy has resulted in a slowing in third quarter comparable sales growth to low single digits. In conjunction with food costs rising faster than CMG previously expected, this will likely result in third quarter EPS slightly below year-ago $0.62. We lower our third quarter comparable sales forecast from 4%-5% to 2%-3%, and cut our EPS estimate by $0.10 to $0.60. We also lower our full year 2008 and 2009 EPS estimates by $0.20 to $2.40, and by $0.25 to $2.65, respectively. Based on our revised DCF model, we cut our target price by $6, to $51. -M. Basham
S&P REITERATES HOLD RECOMMENDATION ON SHARES OF FORD MOTOR (F; 4.95):
We believe rallying share prices of domestic automakers reflect optimism about funding of $25 billion of low-costs loans, previously approved but not funded. Given that MI and OH, two auto-producing states that would benefit from the funding, are battlegrounds in the presidential election, and given the support provided by the candidates, we think funding is likely. However, if not funded before elections, the automakers' leverage will drop. In our view, the loans would be net near-term positives to car and parts makers, but would increase borrowing costs and obligations in the future. -E. Levy-CFA