From Standard & Poor's Equity ResearchUBS DOWNGRADES LEHMAN, OTHER FINANCIAL STOCKS
UBS downgrades Lehman Brothers (LEH), Goldman Sachs (GS), TD AmeriTrade (AMTD), Bank of New York Mellon (BK), State Street (STT), and Invesco (IVZ) to neutral from buy. Analyst Glenn Schorr says the liquidity squeeze and de-leveraging in the capital markets is intense; he thinks the odds are high it will get worse.
Schorr thinks a combination of three things are needed to calm the storm: bids finally meet offers and assets begin to find a clearing price; the government directly or indirectly starts buying up mortgage securities; and the government quickly enacts a credible "bailout" plan that stems the source of the problem: home price depreciation.
But, Schorr notes if or when we get some government intervention, the capital markets will still be facing recession, very weak activity levels, questions about book value, future returns, leverage ratios, regulation, and new (lower) valuation ranges.
CREDIT SUISSE REITERATES OUTPERFORM ON JP MORGAN CHASE
Credit Suisse analyst Susan Roth Katzke says the Bear Stearns (BSC) sale comes as little surprise, but the $2 per share price (all stock) is well below what she would have expected, reflecting both dire circumstances at Bear and opportunity for well-capitalized and liquid JP Morgan (JPM).
She expects accretion to JP Morgan's 2008 and 2009 EPS. She says prime brokerage and clearing are a strategic plus (JP Morgan was sorely lacking in PB, she says); adds to energy/commodities, asset and wealth management, and distressed mortgage operations are also a benefit. Beyond this, she figures much of the capital markets busines represents overlap.
Katzke keeps estimates and target price ($50-55) for JP Morgan at this point; she has good bit of confidence in EPS accretion, but less confidence in the near-term market and macro-economic outlook.
MORGAN KEEGAN CUTS ESTIMATES FOR TEMPUR-PEDIC
Morgan Keegan analyst Laura Champine says Tempur-Pedic International (TPX), citing challenging economic factors affecting consumer spending, cut first quarter guidance, and now sees first quarter net sales showing a high-single-digit drop year-over-year, and sees EPS at about half the first quarter 2007's $0.35.
Champine cuts her $0.47 first quarter EPS estimate to $0.12, $2.08 for 2008 to $0.88 and $2.41 for 2009 to $1.17.
But she thinks much of the negative outlook is baked into the current share price; she notes TPX as of Friday had fallen 55% over the past seven months. She says TPX remains the top brand in the specialty bedding industry. She believes TPX remains attractive in a historically steady industry facing unprecedented weakness.
She maintains outperform opinion, with a $22 fair value estimate.
CREDIT SUISSE DOWNGRADES CEMEX TO NEUTRAL FROM OUTPERFORM
On Friday, Cemex, S.A.B. (CX) forecast first quarter operating income down 25% from year ago. Credit Suisse analyst Marcelo Telles says his downgrade follows the company's weaker-than-expected guidance.
Telles sees significant deterioration across Cemex's markets, i.e., U.S. and Spain; and Mexico, which was supposed to counterbalance the U.S. slowdown, has shown significant sign of weakness, which in his view may not be explained just by lower investment in infrastructure.
He believes the decline in volumes expected to be seen in the first quarter is leading Cemex to rely considerably on strong recovery in the second half of 2008, but the likelihood of this materializing remains highly uncertain at this point. He notes that rising energy costs should continue to put pressure on margins.