S&P Raises Opinion on Take-Two

Plus: Analyst opinions on Federal Home Loan, Spectrum Brands, and more

Take-Two Interactive (TTWO)

Upgrades to 3 STARS (hold) from 2 STARS (sell)

Analyst: Clyde Montevirgen

The shares are up 13% this morning following unconfirmed reports on Reuters that several large investors have pooled their stakes to vote for a slate of director candidates and ask for the power to replace the current CEO, among other objectives. The combined investment group has a reported 24.5% stake. We think that changes in management could lead to acceleration in fundamental improvement. We believe this news and lower fiscal year expectations reduces risk and improves investor sentiment. We are raising our discounted cash-flow-based 12-month target price by $7, to $22.

Federal Home Loan (FRE)

Maintains 3 STARS (hold)

Analyst: Stuart Plesser

Although Federal Reserve Chairman Ben S. Bernanke commented yesterday that Freddie and Fannie Mae (FNM) should be limited almost exclusively to holding home loans or securities that promote affordable housing, we remain dubious that further restrictions will be enacted because of strong support from the Democratic Party for these government sponsored enterprises. However, one possible outcome, rather than limiting retained portfolios, may be to raise minimum capital requirements. We are keeping our 12-month target price of $70, about 2 times our 2006 book value estimate.

Spectrum Brands (SPC)

Maintains 2 STARS (sell)

Analyst: Loran Braverman, CFA

Spectrum has released revised fiscal 2006 (ended September) quarterly information breaking out segment profitability for the Home & Garden business. This business was reclassified as discontinued in the first quarter of fiscal 2007. However, the revised income statements do not indicate what portion of corporate and interest expenses should be attributed to this segment. Based on the information we currently have and on a higher effective tax rate assumption, we are reducing our fiscal 2007 EPS estimate for Spectrum by 14 cents to 38 cents, and lowering our p-e-based 12-month target price by 50 cents to $8.

ON Semiconductor (ONNN)

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

Analyst: Clyde Montevirgen

Our upgrade is primarily on valuation, as the share price has fallen about 10% over the past couple of weeks. Although we believe the addressable market will experience below-industry growth this year, we think conditions are improving, and we see stronger growth prospects toward the end of the year. We also believe ON Semiconductor's recent refinancing measures will aid profitability, and that its earnings potential calls for higher multiples. We are raising our 12-month target price $2 to $13, based on discounted cash flow and relative metrics.

Simon Property (SPG)

Ups to 5 STARS (strong buy) from 4 STARS (buy)

Analyst: Robert McMillan

After a recent decline, we think the Simon Property shares offer significant appreciation potential on a total return basis. We think Simon Property, as the largest retail-oriented REIT in the U.S., will continue to be a major beneficiary of retailer expansion and healthy retail spending. We also believe the planned acquisition of Mills Corp (MLS) will broaden its mall portfolio and generate increased operating efficiencies (pending approvals). We are maintaining our 2007 and 2008 per-share funds from operations estimates of $5.80 and $6.27, and our $122 target price. Simon Property yields 3.1%.

Payless ShoeSource (PSS)

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

Analyst: Mark Basham

Jan. quarter EPS of $0.38 vs. $0.01 loss exceeds our $0.06 estimate, mostly on $0.22 non-recurring tax benefit. The upside also reflects 14-week quarter, but even on a comparable 13-week basis, EPS was sharply above our estimate. Payless ShoeSource plans to acquire the privately held retail brand management company Collective International for $91 million in cash, which would let Payless ShoeSource secure ownership of its Airwalk brand and establish a license revenue opportunity. We are upping our 2008 (Jan.) estimate by $0.10 to $1.75, initiating 2009 at $2.05, and raising our 12-month target price by $4, to $40.

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