S&P KEEPS SELL OPINION ON SHARES OF LEHMAN BROTHERS
August-quarter EPS of $1.54 vs. $1.57 beat our $1.43 view. Investment banking revenues, particularly advisory fees, were stronger than we anticipated. The firm wrote down certain mortgage-related positions and loan commitments, hurting fixed income results, and we expect further trouble in this segment. Book value increased, but we await management's comments about current conditions prior to revisiting our balance sheet projections. We are keeping our fiscal 2007 (ending November) and fiscal 2008 EPS estimates at $7.36 and $6.68, respectively, and our target price at $55, 1.5 times projected book value. /M. Albrecht
S&P DOWNGRADES OPINION ON SHARES OF E*TRADE FINANCIAL TO HOLD FROM BUY
E*Trade says it will exit the wholesale mortgage business and streamline its mortgage lending operation as part of a restructuring. Severance and other restructuring charges will total about $32 million, and second-half 2007 loan loss provisions are seen at $245 million. The mortgage portfolio will now solely focus on first-lien loans to prime borrowers and margin debt. We are reducing our 2007 EPS estimate to $1.09 from $1.64 on higher provision and probable asset impairments, and lowering our 12-month target price by $2 to $15, 13.8 times our EPS view, a discount to peers due to remaining mortgage exposure. /M. Albrecht
S&P REITERATES HOLD OPINION ON SHARES OF YAHOO INC.
Yahoo agrees to purchase Zimbra, a provider of AJAX-based e-mail, calendar and contact-management software, for some $350 million. Zimbra will help Yahoo expand its presence in universities, businesses, and via ISPs. We note that Zimbra sells to enterprises, historically not Yahoo's focus or strength. Regardless, we think Zimbra will ultimately enable Yahoo to provide more robust and easy-to-use e-mail and related offerings. We see the deal, which we expect to close in the fourth quarter, pending approvals, as consistent with Yahoo's new emphasis on technology, openness, and scalability. /S. Kessler
S&P MAINTAINS BUY RECOMMENDATION ON SHARES OF ADOBE SYSTEMS
August-quarter operating EPS of 41 cents vs. 25 cents is 5 cents above our view. Revenues rose 41% to $852 million, $54 million above our outlook on strong upgrades for the recently launched CS3 suite. Strong contributions from Europe and demand for Macintosh versions of CS3 also contributed to revenue growth. We note that Adobe has not seen a slowdown in spending from either the government or financial services sectors. We lift our fiscal 2007 (Nov.) EPS estimate 9 cents to $1.44 and fiscal 2008's by 8 cents to $1.66. We raise our 12-month target price by $3 to $51, using a blend of relative and intrinsic valuation measures. /Z. Bokhari