S&P Upgrades Countrywide Financial to Sell

Plus: Analyst opinions on Sirius Satellite Radio, Halliburton, and more

Countrywide Financial (CFC)

Ups from 1 STAR (strong sell) to 2 STARS (sell)

Analyst: Stuart Plesser

Countrywide's shares have fallen over 10% year-to-date, in our view leaving only modest downside potential. We are concerned about Countrywide's exposure to the subprime market and the possibility of loans being put back to Countrywide due to higher default rates. We also believe that Countrywide's gain-on-sale margin will fall due to a widening of credit spreads in the securitization market. Finally, we remain cautious about Countrywide's option ARM loans, which comprise over 40% of loans held. We are lowering our target price by $2 to $36, 8.2 times our 2007 EPS estimate of $4.37, a discount to Countrywide's historical average.

Federated Department Stores (FD)

Cuts to 3 STARS (hold) from 4 STARS (buy)

Analyst: Jason Asaeda

Jan. quarter operating EPS of $1.60 vs. $1.37 beats our $1.50 estimate, aided by merger cost synergies and share buybacks. While we have a positive view of ongoing merchandising and marketing changes Federated is making at new Macy's doors, we think a weak sales trend and higher markdown levels imply that customers and employees need more time to buy into changes. We are cutting our fiscal year 2008 (ending Jan.) EPS estimate by $0.30 to $2.92 on our lowered forward sales and margin growth assumptions. With shares approaching our unchanged 12-month target price of $50, we would not add to positions.

CBS Corp. (CBS)

Maintains 4 STARS (buy)

Analyst: Tuna Amobi, CPA, CFA

Fourth-quarter EPS from continuing operations of 43 cents, vs. 30 cents one year earlier, is 5 cents shy of our estimate. We saw variance on investment write-down and predict further gains on TV licensing/ads, improved operating leverage at Outdoor unit and surprisingly strong Publishing. CBS affirms 2007 and long-term target growth in low single-digits for revenue, mid-single digits for EBIT, and high single-digits for EPS. The company raised its quarterly dividend again, by 10 cents to 22 cents and, as we expected, set a new $1.5 billion stock buyback program. We base our $36 target price on relative enterprise value/EBITDA and p-e-to-growth.

Sirius Satellite Radio (SIRI)

Maintains 3 STARS (hold)

Analyst: Tuna Amobi, CPA, CFA

After pre-announced net subscriber additions of 905,000, Sirius posted a fourth quarter loss per share of 17 cents vs. a 23-cent loss one year earlier, 3 cents and 2 cents narrower than S&P and Street views. Except for churn and retail slowdown, we see improving metrics, including subscriber acquisition costs, average revenue per user and auto OEM gains. Sirius guides, in our view, cautious 2007 2 million net adds, with $1 billion total revenues (vs. 2006's $637 million), 2.2%-2.4% churn (vs. 1.9%) and $95 acquisition cost per subscriber (vs. $114). We are cautious on regulatory outlook for pending merger with XM Satellite Radio (XMSR) and are keeping our target price of $4.50 on relative enterprise value/sales.

Halliburton (HAL)

Reiterates 4 STARS (buy)

Analyst: Stewart Glickman

The company announced that it plans to effect the separation of its KBR subsidiary via a split-off of KBR shares to Halliburton shareholders, rather than as a cash dividend spinoff. Halliburton did not indicate the precise exchange ratio to be used for its stake of 135.6 million shares of KBR that it currently owns. We view this decision as a reflection of the recent relative strength of engineering and construction firms, such as KBR, in the market. We anticipate that following the complete separation, shares of Halliburton will trade at a narrowed discount vs. its pure-play oilfield services peers.

Dynegy (DYN)

Cuts to 3 STARS (hold) from 4 STARS (buy)

Analyst: Christopher Muir

Dynegy posts fourth quarter operating loss per share of $0.16 vs. a loss of $0.22, $0.12 wider than our estimate. Gross margin and non-operating income were lower than we expected and non-fuel operating expenses were higher than we forecast. We expect Dynegy to complete the acquisition of LS Power by the end of the first quarter, subject to approvals. For 2007, we look for gross margin improvement, partly offset by higher interest expense. We are raising our 2007 EPS estimate $0.08 to $0.28 on a higher gross margin estimate, expect 2008's at $0.39, and boost our 12-month target price $0.50 to $8.50.

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