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S&P Picks and Pans: Alcoa, J&J, Texas Instruments, Pulte


Analyst opinions on stocks making headlines Wednesday

S&P MAINTAINS HOLD OPINION ON SHARES OF ALCOA INC.

From Standard & Poor's Equity Research

AA; $34.29

Alcoa has decided to divest its ownership of Aluminum Corp. of China Ltd. (Chalco), China's largest alumina and aluminum producer. Alcoa acquired its stake in 2001 upon Chalco's initial public offering, and the shares have risen nearly 15-fold over the past six years. It now owns about 7% of the shares, and the sale will generate proceeds of more than $2 billion and a profit of more than $1 billion. We expect Alcoa to reinvest these proceeds in other businesses. In our view, these shares are fairly valued at current prices and we maintain our p-e-based 12-month target price of $36. /L. Larkin, S. Benway-CFA

S&P KEEPS BUY OPINION ON SHARES OF JOHNSON & JOHNSON

JNJ; $62.05

Yesterday, an FDA advisory panel recommended against imposing new restrictions on the use of erythropoiesis-stimulating agents in treating anemia in kidney-failure patients. We believe the recommendation will ease concerns regarding tighter restrictions on the compounds for Medicare and private pay dialysis and oncology patients. J&J sells one of these agents under the Procrit/Eprex name, and we continue to project that sales of the compounds will approximate $2.8 billion in 2007 and $2.5 billion in 2008. Our 12-month target price remains $68. The stock offers a dividend yield of 2.6%. /R. Gold

S&P REITERATES STRONG BUY OPINION ON SHARES OF TEXAS INSTRUMENTS

TXN; $35.72

The company provides a mid-quarter update, and now projects third-quarter sales of $3.56-$3.72 billion, compared with previous guidance of $3.49-$3.79 billion, and EPS to be 49 to 53 cents, including a 2 cent gain, compared with 46 to 52 cents. The midpoint of the ranges are unchanged, and are slightly below our estimates. Although demand for wireless products remains lower than expected, we believe that orders will eventually improve and complement improving analog orders. We are reducing our quarterly and annual EPS estimates by 1 cent, and now see 2007 EPS of $1.82, but are keeping our 12-month target price of $44. /C.Montevirgen

S&P REITERATES SELL OPINION ON SHARES OF PULTE HOMES

PHM; $15.22

As Pulte is a market leader, we see it surviving the housing downturn, which may not recover until mid-2008 - though some economists forecast a later recovery. Despite second-quarter write-offs of $603 million, we see more charges in the third quarter for homesites and land development impairments. We are cutting our net tangible book value estimate to $21 from $23 to reflect our cautious view on forward write-offs and cancellations. Base on a target price-to-book ratio of just under 0.7 times, near the low end of historical range but in line with large homebuilder peers, we are cutting our target price by $2 to $14. /K. Leon-CPA


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