S&P Picks and Pans: Motorola, Sallie Mae, Alcan, CNOOC

Analyst opinions on stocks making headlines Thursday

Motorola (MOT; $17.95)

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

Analyst: Todd Rosenbluth

We have less confidence in Motorola's ability to turn itself around in 2008, following its second-quarter pre-announcement and executive changes. With handset shipments now having likely declined to 35.5 million, 8 million below our estimate, revenues and EPS should be weaker than we had expected. In advance of full second-quarter results, we are reducing our 2007 operating EPS estimate by 5 cents to 30 cents and our 2008 estimate by 21 cents to 79 cents, but see benefits from operating margin expansion and share buybacks. While we see the seconmd quarter as the trough for Motorola, we also lower our 12-month target price by $2 to $20 on a relative analysis.

Sallie Mae (SLM; $53.27)

Maintains 3 STARS (hold)

Analyst: Stuart Plesser

The shares are up this morning after a sharp drop yesterday on legislation passed by Congress that called for further slashes of subsidies to student lenders. If this becomes law, it would further cut into SLM margins and may be grounds for investor group led by J.C. Flowers to back out of their agreement to buy SLM at $60. Although we do not believe that J.C. Flowers' ability to terminate the deal is clear, we do think the legislation would result in a lower purchase price. As a result, we are reducing our 12-month target price $6 to $54, 10% below the current buyout price.

Alcan (AL; $89.60)

Reiterates 3 STARS (hold)

Analyst: Leo Larkin

Shares of Alcan are up sharply in pre-market trading on news that the company agreed to be acquired by Rio Tinto plc (RTP), one of the world's largest mining companies, in a transaction valued at $38.1 billion, or some $101 a share. The proposed takeover by RTP exceeds Alcoa's (AA) hostile bid of $28.8 billion, or $76 a share. We are raising our 12-month target price to $101 from $85 to reflect our expectation that the merger will occur. In our view, it is unlikely that Alcoa will be able to top Rio Tinto's offer given the latter's stronger finances.

CNOOC (CEO; $119.44)

Downgrades American Depositary Shares to 3 STARS (hold) from 5 STARS (strong buy)

Analysts: L. Tan, CFA, L. Cang

The downgrade is based on valuation. The recent run-up in the ADS price accompanied a strong rise in crude prices, which we think will only be sustained by supply shortfalls and geopolitical disruptions. While we believe CNOOC will benefit most among its China peers from rising crude prices, our downgrade reflects valuation following the sharp rise in the ADSs. We are cutting our 2007 earnings per ADS estimate to $9.33 from $9.71, with projected higher costs and taxes outweighing higher crude prices. However, we are raising our 12-month target price to $128 from $115 on potential A-share listing and higher crude prices.

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