S&P DOWNGRADES RECOMMENDATION ON SHARES OF WAL-MART STORES TO HOLD FROM BUY
Wal-Mart reports July-quarter operating EPS of 72 cents, vs. 72 cents one year earlier, 5 cents below our expectations. Benefits from an 8.8% rise in net sales were offset as higher shrink, an unfavorable shift in product mix, and increased markdowns led to narrower gross margins. We believe gross margin pressure is likely to continue for the intermediate term as Wal-Mart implements a more aggressive pricing strategy. As a result, we are reducing our fiscal 2008 (ending January) and fiscal 2009 EPS estimates by 7 cents and 15 cents , to $3.08 and $3.35. Based on our updated discounted cash-flow (DCF) and p-e analyses, we are lowering our 12-month target price by $8 to $48.
S&P MAINTAINS HOLD OPINION ON SHARES OF MATTEL
According unconfirmed reports in AP and WSJ, Mattel is close to announcing a second big recall of Chinese toys based on lead paint safety concerns. This would follow its announcement two weeks ago that it would recall nearly 1 million Chinese-made toys that contained the lead paint, and incur a $30 million charge in the already reported second quarter. We remain concerned about litigation risks and the potential impact this news could have on the upcoming holiday shopping season. That said, we keep our 2007 EPS estimate at $1.60, and our 12-month target price at $27 on historical analysis. /E. Kolb
S&P REITERATES HOLD OPINION ON SHARES OF COMPUTER SCIENCES CORP.
CSC announces that it will not file its June-quarter Form 10-Q with the SEC by the Aug. 13 deadline, based on difficulties encountered in determining the impact of FASB Interpretation No. 48, regarding the accounting for uncertainty in income taxes. The company did, however, reaffirm its June-quarter EPS guidance of 65-75 cents, and we are keeping our EPS estimate at 68 cents for the quarter, and $4.13 for full fiscal 2008 (ending March). We are maintaining our 12-month target price of $60, based on a peer-discount p-e of 14.7 times our calendar 2007 EPS estimate of $4.07. /D. Cathers
S&P MAINTAINS HOLD RECOMMENDATION ON ADSS OF ING GROEP
ING reports second-quarter net income of €2.56 billion, vs. €2.01 billion, ahead of our forecast of €2.46 billion. Results include €573 million from the partial sale of ING's stake in ABN Amro (ABN). We are raising our 2007 and 2008 earnings per ADS estimates, including ABN proceeds, to $6.19 and $5.65, from $4.58 and $4.79. We base our 12-month target price on a DCF model, assuming a cost of equity of 10% and a return on embedded value (present value of all future surpluses) fading to 11%. On lower 2009 and beyond assumptions, we are reducing our target price by $2 to $45. /A. Silverman