S&P Picks and Pans: Countrywide, Qualcomm, Target
S&P MAINTAINS SELL RECOMMENDATION ON SHARES OF COUNTRYWIDE FINANCIAL CORP.
Despite today's announcement by Countrywide that it is able to borrow an additional $12.0 billion from its lenders to fund its operations, we are maintaining our sell opinion and 12-month target price of $16. We think that Countrywide's earnings will come under pressure from lower originations, lower net interest margins, and what we see as a significant contraction in its gain-on-sales margins. Our target price implies a price-to-earnings ratio of 9.0 times our 2007 EPS estimate of $1.78, a discount to Countrywide's five-year average, based on our concerns about the housing market and credit quality. /E. Oja, S. Plesser
S&P REITERATES HOLD OPINION ON SHARES OF QUALCOMM INC.
The Court of Appeals for the Federal Circuit granted a stay pending appeal that will allow third parties to import handsets into the U.S. that were banned by the International Trade Commission. Qualcomm and third parties argued that the ban on imports applied only to Qualcomm and not to "downstream users" of the chips. However, we note that the Federal Circuit declined to issue a stay with respect to Qualcomm's own importation of the chips in question. Given the uncertainty surrounding this and other court cases involving Qualcomm, we would refrain from adding to positions. /T. Rosenbluth, D. Cathers
S&P REITERATES HOLD RECOMMENDATION ON SHARES OF TARGET CORP.
Target is reviewing the potential sale of its $7 billion in credit card receivables. We see this as a move to appease investors critical of the company's long-standing position that retaining ownership of this business is in its best interest. Based on similar transactions completed by major U.S. retailers, we believe a sale would be accretive to earnings, as proceeds could fund more aggressive share buybacks. Target expects to complete the review, as well as a re-evaluation of its use of debt in its capital structure and pace of share repurchases, by the end of December. /J. Asaeda