S&P Picks and Pans: J&J, CBS, Morgan Stanley, Under Armour

Analyst opinions on stocks making headlines Tuesday

Johnson & Johnson (JNJ; $61.18)

Maintains 4 STARS (buy)

Analyst: Robert Gold

The company announces a much-anticipated, in our view, restructuring intended to align its cost structure, with challenges evident in both the drug and device segments. Given approaching patent expirations for Risperdal and Topamax, and slower growth for Procrit/Eprex and drug-coated stents, we think J&J will increasingly pursue cost cuts to sustain margins, though we think it will allocate a substantial portion of the $1.3-$1.6 billion pretax savings to build its drug pipeline. We are cutting our 12-month target price by $6 to $68 based on peer multiples, discounted cash-flow, and sum-of-the-parts analyses.

CBS Corp. (CBS; $32.17)

Maintains 3 STARS (hold) on Class B shares

Analyst: Tuna Amobi, CPA, CFA

Before a one-cent net gain, second quarter EPS is 54 cents on 5% less shares, vs. 47 cents, in line with our estimate. We expect mixed results from TV and Outdoor units, and continued challenges for Radio, despite turnaround steps and some divestitures. We note healthy 2007-08 TV upfront, but the long-term impact of new "C3" ratings currency is unclear. Despite the comments of the company's chairman, we do not see going-private as a near-term catalyst. CBS affirms long-term low single-digit revenue growth, mid-single-digit earnings before interest and taxes (EBIT), and high single-digit EPS growth. Our p-e-to-growth based target price stays $36, with the stock's 2.7% dividend yield and share buybacks.

Morgan Stanley (MS; $66.10)

Reiterates 3 STARS (hold)

Analyst: Matthew Albrecht

The company plans to sell a minority interest in its MSCI subsidiary, the provider of MSCI indices and the Barra risk analytic tools, through an IPO to be completed by the end of 2007, pending necessary approvals. We believe this move would allow the company to focus its efforts on its core business, much like the recently completed Discover spin-off. We are reducing our fiscal 2007 (Nov.) EPS estimate by 77 cents to $8.47 to account for more challenging market conditions and the Discover transaction. We are lowering our 12-month target price by $24 to $73, 2.0 times book value, in line with peers.

Under Armour (UA; $62.77)

Maintains 4 STARS (buy)

Analyst: Marie Driscoll, CFA

Under Armour reports second quarter EPS of 11 cents vs. 5 cents, well above our estimate of 3 cents, propelled by a 51% sales gain from strength across all categories, including the company's most mature line of men's apparel, which grew 50%. Average unit retail rose 8%, as UA executed on a good/better/best merchandise strategy. We see continued strong brand momentum as Under Armour launches new products and categories (look for crosstrainers in 2008) and expands distribution. We are increasing our 2007 and 2008 EPS estimates by 10 cents each, to $1.05 and $1.45. We are raising our 12-month target price to $75 from $70.

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