S&P Picks and Pans: Verizon, Citigroup, EMC, PetroChina

Analyst opinions on stocks making headlines Monday

Verizon Communications (VZ; $41.76)

Maintains 3 STARS (hold)

Analyst: Todd Rosenbluth

We expect Verizon to open higher following unconfirmed reports in the Financial Times that Verizon Wireless' (VZW) joint venture partner Vodafone (VOD) is considering plans to bid for the company to gain full control of VZW; Vodafone denies such plans. We believe talks have been ongoing regarding VZW for years as Vodafone has been pressured to review all wireless assets it does not have majority control over. We believe a deal for Verizon Communications, which has aggressive capital spending plans, in our opinion, would be challenged by the need for Vodafone to sell or spin-out the second largest wireline carrier in the U.S.

Citigroup (C; $52.38)

Reiterates 5 STARS (strong buy)

Analyst: Frank Braden

The company announces it will record a $400 million after-tax third quarter gain relating to the sale of part of its stake in Redecard, a merchant-acquiring company for MasterCard (MA) in Brazil. Citigroup will retain a 25% interest in Redecard after the sale. For second quarter, we expect EPS of $1.14 vs. $1.05. We forecast that revenues will outpace expenses, driven by strong investment banking and trading results, partly offset by the impact of weakness in subprime mortgages. We are maintaining our 12-month target price of $63, 12.5 times our $5.02 2008 estimate, in line with historical average.

EMC Corp. (EMC; $19.20)

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

Analyst: Jawahar Hingorani

New products from EMC reduce data center costs by consuming less power and improving efficiencies. We see this, and the company's leadership in virtualization, which allows IT managers to boost performance from storage assets, raising the bar for competitors. We think momentum of the new products and the cachet of the imminent IPO of subsidiary VMware bode well for EMC in the second half, when we see enterprise spending returning to earlier levels. We are raising our 12-month target price by $3 to $23, 27 times our fiscal 2008 estimate, a bit above peers to reflect EMC's leadership position.

PetroChina (PTR; $157.45)

Downgrades ADRs to 4 STARS (buy) from 5 STARS (strong buy)

Analysts: L. Tan, CFA, L. Cang

Our opinion change is based on our expectation of second quarter refining losses, reflecting the reluctance of the PRC government to lift petroleum product prices. However, we are raising our full-year 2007 earnings per ADR estimate to $11.12 from $11.00, based on stronger gas sales growth we project for the second half, helped by the West-East gas pipeline expansion. We are also raising our 12-month target price to $179 from $166 on our expectation of a higher average gas selling price and increased production supported by PetroChina's sizable gas pipeline networks.

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