S&P Picks and Pans: Bear Stearns, AHM, ValueClick, Ingersoll-Rand

Analyst opinions on stocks making headlines Monday

Bear Stearns Cos. (BSC; $124.70)

Downgrades to sell from hold

Analyst: Matthew Albrecht

Bear faces obstacles in the near term, in our view, that should cause it to underperform its industry peers. A deteriorating mortgage environment will likely continue to cause declines in origination and securitization volume, and widening credit spreads and increasing risk aversion may cause a slowdown in its investment banking operation. The asset management unit may struggle to keep client assets. We are reducing our fiscal 2007 (Nov.) EPS estimate by 49 cents to $14.10. We are lowering our target price by $37 to $120, or 1.3 times book value, a discount to peers to reflect less diversification.

Verizon Communications (VZ; $41.07)

Maintain hold opinion

Analyst: Todd Rosenbluth

After Verizon's call to review second quarter result: EPS was a penny below our estimate due to fewer share buybacks than expected. We think the company's fundamentals are improving. We are encouraged by wireline revenues, which should be relatively stable in the second half 2007 and in 2008 despite access line losses. We also see EBITDA margin expansion from wireless growth and wireline cost reductions. We are increasing our 2008 EPS forecast by $0.07 to $2.63. Based on a blend of relative valuation metrics, we are raising our 12-month target price by $2 to $41. Verizon has a 4.0% dividend yield.

American Home Mortgage (AHM; $10.47)

Downgrades to sell from buy

Analyst: Jason Willey

AHM announces that to preserve liquidity it is delaying its common dividend and likely delaying payment of its preferred dividends. We believe AHM is facing significant liquidity issues from margin calls as the value of its assets have declined. Given the lack of information provided by the company, the difficulties in the residential mortgage market, and the uncertainty in assessing the true value of its assets, we have concerns about AHM's viability. We are cutting our 12-month target price to $5 from $22, reflecting our best estimate of the liquidation value of AHM's portfolio.

ValueClick (VCLK; $20.35)

Reiterate buy opinion

Analyst: Scott Kessler

VCLK is down about 22%, as it posts second quarter EPS of $0.17 vs. $0.14, $0.01 below our forecast, and lowers its 2007 revenue and EPS guidance. The promotion-based business is being hurt by a related FTC inquiry with which VCLK has been cooperating. VCLK believes it has complied with associated laws and regulations. Nonetheless, we are lowering our EPS estimates for 2007 to $0.75 from $0.85, and 2008's to $0.99 from $1.05. Based on revised peer and DCF analyses, we are also lowering our 12-month target price to $27 from $31. We think today's sell-off offers an enhanced buying opportunity.

Ingersoll-Rand (IR; $51.03)

Maintain hold opinion

Analyst: Christopher Lippincott

IR announces it has agreed to sell its Bobcat and Utility and Attachments businesses to South Korea's Doosan Infracore for $4.9 billion, subject to closing conditions and regulatory approvals. We estimate the deal values these units aggregately at 13.7 times 2006 EBITDA, or 1.88 times 2006 sales. Together with the company's April sale of its Road Development business to Volvo ($18.69, Hold), IR will have generated total proceeds of over $6.2 billion if this deal closes. We are reiterating our 12-month target price of $50, based on our discounted cash flow and relative valuation analyses.

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