JP MORGAN CUTS ESTIMATES FOR BROKERS
JP Morgan analyst Kenneth Worthington says he's reducing estimates on Morgan Stanley (MS), Goldman Sachs (GS), Lehman Brothers (LEH) and Merrill Lynch (MER). He expects write-downs of fixed income inventory and a slowdown in M&A and origination activity to hurt results for all the brokers.
Worthington notes continued write-downs should be positive for the stocks in the short term, alleviating investor fears of the worst and creating the perception of a lower earnings base. However, he adds that large write-downs reflect failed risk management and business strategies, and should hurt valuation longer term.
For fiscal year 2008, he cuts Goldman Sach's $23.50 EPS estimate to $22.57, Lehman's EPS forecast from $7.35 to $7.03, Morgan Stanley's forecast of $7.05 to $6.35, and Merrill's estimate of $8.05 to $7.82.
PUNK ZIEGEL CUTS BEAR STEARNS, GOLDMAN SACHS, LEHMAN TO SELL FROM MARKET PERFORM
Punk Ziegel analyst Richard Bove tells S&P MarketScope he recently upgraded Goldman Sachs, Bear Stearns (BSC) and Lehman Brothers to market perform from sell, but he now believes the upgrades were premature and downgrades all three stocks back to sell.
Bove says the brokerage business is undergoing a metamorphosis; a retrenchment is underway that will force significant adjustments in the ways these businesses are run. He says assets will shrink, product lines will be cut back and personnel will be let go.
He notes that November may have been one of the worst periods on record for the group, and this will negatively impact earnings near term. Going forward, says his position is to "aggressively buy the bank stocks and sell the brokers."
GOLDMAN DOWNGRADES XM SATELLITE RADIO TO SELL FROM NEUTRAL
Goldman Sachs analyst Mark Wienkes says he downgrades XM Satellite Radio Hldings (XMSR) with about 26% downside to his unchanged $11.50 12-month price target. He notes he could be wrong in the near term if the Dept. of Justice approves the proposed XMSR/Sirius Satellite Radio (SIRI) merger, but says the downgrade is valuation based and contemplates possible short-term price swings whether the DOJ approves or rejects deal.
Deal or no deal, Wienkes thinks the current valuation incorporates a view too close to optimal, i.e., DOJ and FCC approvals with few conditions and subsequently, near-certain realization of all potential synergies. He sees risk/reward as $3 near term upside in a "deal" scenario, vs. about $8 downside given "no deal."