S&P Picks & Pans: Intel, SanDisk, Lear, Sony, EchoStar

Analyst opinions on stocks making headlines Monday

Intel Corp. (INTC; $24.87)

Reiterates 4 STARS (buy)

Analyst: Clyde Montevirgen

Intel is planning to invest $219 million in VMware, a maker of software for virtualization and a subsidiary of EMC (EMC). The agreement, pending approvals, would give Intel approximately a 2.5% stake and a seat on VMware's board after that company's planned IPO in which it expects to sell about 38 million shares at a price of $23-$25. Intel agrees to pay $23 per share for 9.5 million shares. Although we do not see an immediate effect on Intel's income statement, we think that this relationship could drive important synergies in the long term.

SanDisk (SNDK; $51.53)

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

Analyst: J. Hingorani

The recent perception of stabilizing flash memory prices and the rise in SanDisk's stock price has rewarded shareholders. However, we believe that unless the industry corrects its over-capacity situation, further declines in pricing are possible. SanDisk benefits from this over the longer term, in our view, with its competitive advantages from captive supply, and an extensive retail presence. We raise our 12-month target price by $3 to $53, 23.3 times our fiscal year 2008 EPS estimate, slightly below the S&P 500 computer storage average, taking into account our view of pricing risk.

Lear Corp. (LEA; $36.86)

Reiterates 3 STARS (hold)

Analyst: Efraim Levy, CFA

Lear shares are higher this morning as its board recommends accepting a $37.25 cash buyout bid from Carl Icahn's American Real Estate Partners, sweetened from $36. We think the deal price at just 14.1 times our 2007 EPS estimate of $2.64 is on the low side. However, in the absence of competing bids, and despite the resistance of certain institutional shareholders seeking a higher valuation, we think the transaction is likely to be consummated, subject to the usual required approvals. As a result, we are cutting our 12-month target price price by $2, to $37.

Sony Corp. (SNE; $53.14)

Maintains 3 STARS (hold) on ADRs

Analyst: E. Kwon, CFA

Sony cuts PlayStation 3 price by $100 to $499 to stimulate sales, bringing the price close to the $480 for Microsoft's (MSFT) high-end Xbox 360 Elite. This was unexpected, after last week's denial by SNE President Chubachi of plans to cut prices to various media; contrary to the Wall Street Journal's assertion that the move was "widely expected." Sony also introduces a high-end 80-gigabyte PlayStation 3 for $599. With more software titles coming, Blu-ray gaining traction, and Xbox 360's quality problems, we like this move and think accelerating uptake is likely in the coming year.

EchoStar Communications (DISH; $44.56)

Maintains 2 STARS (sell)

Analyst: Tuna Amobi, CPA, CFA

An unconfirmed Wall Street Journal story names EchoStar as a possible participant in bid for Dow Jones (DJ), as part of a group led by MySpace co-founder Brad Greenspan. We would not dismiss contemplation by EchoStar of a potentially limited passive minority stake in Dow Jones. Absent sizable potential synergies, though, such an overture could be motivated by financial, rather than strategic considerations. Still, with both News Corp. (NWS) and Dow Jones seemingly in productive negotiations, we would view the suggested EchoStar bid as little more than a long-shot attempt for Dow Jones.