S&P Picks and Pans: Sprint, Pfizer, Alcoa, D.R. Horton

Analyst opinions on stocks making headlines Tuesday

Sprint Nextel (S; $21.48)

Maintains 2 STARS (sell)

Analyst: Todd Rosenbluth

We believe that Sprint may open higher, as unconfirmed reports from The Korean Economic Daily indicate that SK Telecom (SKM) has expressed an interest in acquiring the company. According to Reuters reports, SK denied that it plans to buy any U.S. carrier. We are uncertain if there is validity to the latest interest in the struggling, yet sizable Sprint, which we think will have difficulty maintaining market share in 2007. SK has a stake in niche U.S. wireless joint venture Helio, which uses Sprint's network capacity, but has had limited success. Our 12-month target price remains $18.

Pfizer Inc. (PFE; $25.76)

Reiterates 3 STARS (hold)

Analyst: Herman Saftlas

Pfizer wins a Lipitor patent case in Ireland, but we think the drug, with global sales of $13 billion, still faces significant generic challenges in other countries such as Canada, Norway, and Spain. And U.S. Lipitor scripts continue to decline under pressure from generic Zocor and others. On the plus side, we see strong growth for newer drugs such as Lyrica, Geodon and Sutent. EPS should also benefit from ongoing cost cuts, and a $10 billion stock buyback this year. We are keeping our 12-month $28 target price, a discount-to-peers at 12 times our 2008 EPS estimate of $2.33. Pfizer's dividend yields 4.5%.

Alcoa Inc. (AA; $42.36)

Reiterates 2 STARS (sell)

Analyst: Leo Larkin

Alcoa posts second quarter EPS of 81 cents vs. EPS of 85 cents on a 3.5% sales gain, shy of our 92 cents estimate, partly reflecting a higher-than-expected tax rate and curtailment charges. We are cutting our $3.05 2007 EPS estimate to $2.90 and our 2008 estimate from $2.95 to $2.85 to reflect a likely drop in aluminum prices. Long-term, we think the company will benefit from industry consolidation and a shift to lower-cost plants. Free cash flow should improve as capital spending likely declines after 2007. But with the stock trading above our P/E-based $36 12-month target price, we would sell.

D.R. Horton (DHI; $19.35)

Reiterates 2 STARS (sell)

Analyst: Thomas Smith, CFA

Horton reports June-quarter orders totaling $2.0 billion, vs. year-ago $3.8 billion, well below our estimate of $2.5 billion. We view a 38% order cancellation rate as weak even within the context of a multi-year housing industry slowdown. Average selling price per home fell about 12%, which should contribute to what the company describes as "significant asset impairments." We are lowering our fiscal 2007 (ending September) and fiscal 2008 EPS estimates to 5 cents and $1.05 from $1.30 and $1.50, and trimming our 12-month target price to $17 from $18 based on updated price-to-book analysis.

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