S&P Stock Picks and Pans: GE, Citigroup, BEA Systems, Oracle, Electronic Arts

Analysts' opinions on some stocks in the news Friday

S&P downgrades shares of General Electric (GE; $40.91) to buy from strong buy

Third quarter EPS of $0.50 vs. $0.46, on 8% organic growth in revenue, is $0.05 below our estimate. NBC-Universal and GE Money results were above our expections, and we saw good results at Commercial Finance despite the credit crunch. Growth in Infrastructure was below our estimate, but order growth continues strong. We view GE's long-term outlook as strong, but expect some slowing in Commercial Finance based on our view of reduced global liquidity demand. We are lowering our 2007 EPS estimate only $0.01 to $2.20, maintain 2008's at $2.49, and keep our 12-month target price of $45. - R.Tortoriello

S&P reiterates strong buy recommendation on Citigroup (C; $48.19)

Citigroup announces it is forming an Institutional Clients Group, headed by Vikram Pandit, which will be comprised of Citigroup's Markets & Banking and Alternative Investment businesses. The company also announces the departures of its co-head of investment banking and its co-head of fixed income trading. We believe the shakeup to be similar to those seen at its peers following the turmoil in the credit markets, and we view as positive the increased responsibility and influence of Mr. Pandit. We are expecting third quarter EPS of $0.45, when Citigroup reports results on Oct. 15. - F.Braden,CFA

S&P maintains hold recommendation on BEA Systems (BEAS; $13.62)

The shares are indicated sharply higher today in premarket after Oracle (ORCL; $22.46) proposes an acquisition of BEAS at $17, a 25% premium to last night's close. The price would value BEAS at about a 4.0 times ratio of enterprise value to our fiscal year 2008 sales (January) estimate of $1.52 billion, within the historical average range for BEAS. Given our view of BEAS's strategic value, and the potential marketshare gains to other possible acquirers, we think a higher offer could emerge. We are raising our target price by $5 to $18, a 4.3 times ratio of enterprise value to our fiscal year 2008 sales estimate. - Z. Bokhari

S&P maintains strong buy recommendation on Oracle

Oracle confirms that it has sent a letter to the Board of BEA Systems, proposing to acquire BEAS for $17 per share cash, a 25% premium over BEAS's prior close. ORCL stated that it is prepared to proceed to a formal agreement. We believe the proposed acquisition makes strategic sense for ORCL, who has been gaining share in the application server market, we think at the expense of BEAS. We note that BEAS shares are indicated above ORCL's proposed purchase price in pre-market trading, perhaps signaling that the market expects a competing or higher offer for BEAS. - Z. Bokhari

S&P reiterates hold opinion on shares of Allegheny Technologies (ATI; $106.00)

Shares of this manufacturer of specialty metals are down sharply in premarket trading following the company's preannouncement for third quarter EPS in the range of $1.85-$1.88 and full year 2007 EPS in the range of $7.00-$7.25. ATI noted weak demand for stainless steel, and anticipates further deterioration in the fourth quarter. On that basis, we are reducing our 2007 EPS estimate to $7.25 from $7.75 and 2008's to $7.60 from $7.95. We are cutting our p-e-based 12-month target to $106 from $115, based on our new '08 estimate. - L.Larkin

S&P reiterates sell opinion on Centex (CTX; $29.43 )

Centex's preannouncement of weak September-quarter results supports our view that a bottom or turnaround for CTX is still cloudy. CTX says it will take an impairment charge of about $850 million and write-offs of $40 million for land and $40 million for goodwill. The finance division will also lose $60 million due to exposure to the mortgage market. Our target price of $25 is based on a price-to-book ratio just under 0.7 times our estimated tangible book value of $36.85. We will revisit our full year financial outlook after CTX releases final September-quarter results on Oct. 23. - K. Leon, CPA

S&P reiterates strong sell recommendation on Electronic Arts (ERTS; $58.69)

Electronic Arts plans to acquire two privately-owned video game developers with 10 game titles in the pipeline, for about $860 million in cash and stock, subject to customary approvals. We view this deal unfavorably. While the companies may strengthen ERTS' presence in role-play and action genres, they will not improve its development around Wii, which is a notable growth vehicle for the industry. Also, ERTS expects this deal to be dilutive in fiscal year 2008 (March). Still, we are raising our fiscal year 2008 EPS estimate to $0.84 from $0.78, as ERTS expects September-quarter results to exceed guidance, but keep our target price at $46. - J.Yin

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