S&P KEEPS HOLD RECOMMENDATION ON SHARES OF MORGAN STANLEY (MS; 27.21):
(Update) MS announces plans to pursue a strategic alliance with Mitsubishi UFJ (MTU; 8.40), Japan's largest banking group, with $1.1 trillion in deposits. MTU plans on purchasing up to 20% of MS, based on the agreed-upon book value of MS following due diligence, and will hold one board position at MS, pending regulatory approvals. We think this move will strengthen MS's capital position and hasten its deleveraging. We believe this also means talks between MS and Wachovia (WB; 16.80), suggested in an unconfirmed report by the New York Times, have come to an end. -M. Albrecht
S&P MAINTAINS HOLD RECOMMENDATION ON SHARES OF GOLDMAN SACHS (GS; 129.80):
GS announces it will become a bank holding company and be subject to regulatory oversight by the Federal Reserve. We expect GS to deleverage its balance sheet to bring it into line with commercial banking peers, and we also look for GS to expand its deposit base organically and through acquisition. These moves will probably hamper long-term profitability, in our view. We believe the company has taken these steps in response to market pressure placed on its business model. We think this also will open up the door to additional acquisition and merger possibilities down the road. -M. Albrecht
S&P MAINTAINS BUY RECOMMENDATION ON SHARES OF MICROSOFT (MSFT; 26.21):
MSFT announces a new $40 billion stock repurchase program, after completing its previous $40 billion repurchase program, and an 18% increase in its quarterly dividend to $0.13 per share. Additionally, the board has authorized up to $6 billion in debt financing for general corporate purposes, including share buybacks. We see this announcement as positive, expressing management's belief that its shares are undervalued and its confidence in MSFT's long-term profitability. We keep our fiscal year 2009 (June) EPS estimate of $2.13, but expect the share repurchase to be accretive to earnings long term. -J. Yin
S&P DOWNGRADES OPINION ON ERICSSON ADSS TO SELL FROM HOLD (ERIC; 10.40):
Despite only 8% of sales to North America and no CDMA business, we expect ERIC's large Western European and emerging markets operations to be hurt by slower growth into 2009. We are lowering our 2008 earnings per ADS forecast by $0.12 to $0.68 and 2009's by $0.19 to $0.76, to reflect our weaker margin forecast for its Networks business and slower unit growth for its wireless handset joint venture. Although we believe ERIC's product positioning for LTE to be strong, we see limited benefits. We cut our 12-month target price by $3 to $9, to reflect a peer average p-e multiple of 12 times. -C. Van der Elst
S&P MAINTAINS BUY RECOMMENDATION ON SHARES OF NIKE INC. (NKE; 64.35):
NKE is to report August-quarter results after this Wednesday's (9/24) close. We look for EPS of $0.95 (cut today from $0.99) vs. $1.12; August-quarter 2007 included $0.20 a share foreign tax benefits. We look for an 8% sales gain to $5 billion, reflecting flat U.S. sales offset by a 20% gain in Asia-Pacific and a 10% lift in Europe, Middle East and Asia regions. We see stable margins, but expect the forex benefits NKE has enjoyed in the past two years will now provide a headwind. NKE announced a new $5 billion stock repurchase program, which we see providing support to the shares in a volatile market. - M. Driscoll-CFA