S&P Picks and Pans: Genentech, Infosys, Alcan, Sealy

Analyst opinions on stocks making headlines Wednesday

Genentech (DNA; $74.85)

The company reiterates 4 STARS (buy)

Analyst: Steven Silver

The company enters a collaboration agreement with Tercica (TRCA) to develop new growth hormone drugs using Genentech's Nutropin. It will invest as much of $53 million in equity, R&D reimbursement and milestones, with an option to become a full development partner. We view this move as favorable, representing potential revenue diversification from competitive oncology and inflammation markets. After adjusting our stock option expense estimates, we are lowering 2007 and 2008 EPS estimates to $2.70 and $3.42 from $2.82 and $3.65. We will update after Genentech's earnings, to be released tonight.

Infosys Technologies (INFY; $51.00)

The company reiterates 4 STARS (buy) on American Depositary Shares

Analyst: Dylan Cathers

June-quarter earnings per ADS of 46 cents vs. 31 cents are 4 cents above our estimate. However ADSs are down 3% this morning as Infosys cuts local currency guidance, primarily reflecting the appreciation of the Indian rupee vs. the U.S. dollar. We expect revenue growth of 32% this year, but look for margins to be flat, reflecting rising wages and the stronger rupee, offset partly by price hikes and higher utilization. We are raising our earnings per ADS estimate by 4 cents, to $1.92, but lowering our target price $5 to $60 on a peer-based p-e of 33 times our calendar 2007 earnings estimate of $1.82.

Alcan Inc. (AL; $86.14)

The company reiterates 3 STARS (hold)

Analyst: Leo Larkin

Shares of Alcan are up in pre-market trading on an unconfirmed report in the Times of London that Rio Tinto (RTP), the world's second largest mining co., is planning to offer $34 billion or $90 a share to acquire Alcan. The speculated offer would top Alcoa Inc.'s (AA) hostile offer of $28.7 billion or about $76 a share. We remain a bit skeptical regarding the possibility of a Rio Tinto offer given our view that acquiring Alcan would be less rewarding for Rio Tinto compared with investments in other base metals such as copper, iron ore and uranium.

Sealy Corp. (ZZ; $15.71)

Maintains 3 STARS (hold)

Analyst: Thomas Smith, CFA

Sealy reports May-quarter EPS of 17 cents vs. year-ago breakeven results on revenues up 6.7%, falling short of our 22 cents estimate. The company describes headwinds from modest consumer demand, aggressive price competition, and costs from new product launches. We see potential upside from new specialty products, contributing to a mixed picture overall. We are lowering our EPS estimates to 96 cents from $1.10 for fiscal 2007 (Nov.), and to $1.20 from $1.30 for fiscal 2008. We are reducing our 12-month target price to $17 from $19 based on our updated p-e analysis.

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