S&P Stock Picks and Pans: Microsoft, Countrywide Financial, Merrill Lynch, DeVry
S&P REITERATES STRONG BUY RECOMMENDATION ON SHARES OF MICROSOFT (MSFT; 31.99)
September-quarter EPS of $0.45 vs. $0.35 is $0.07 above our estimate. Revenue rose 27% to $13.8 billion, $1.3 billion above our forecast, driven by increased sales of PCs and Xbox. MSFT estimated worldwide PC shipments grew 14%-16%, while the operating system premium mix rose to 75% from 59%. We expect that percentage to increase in 2008 when enterprises likely begin to adopt Vista. Entertainment and Devices Division grew 91%, led by Halo 3. We are raising our fiscal year 2008 (June) EPS estimate to $1.81 from $1.73, and our 12-month target price to $42 from $36 to reflect our higher earnings and growth outlook. - J.Yin
S&P MAINTAINS HOLD OPINION ON SHARES OF COUNTRYWIDE FINANCIAL (CFC; 13.07)
CFC posts third quarter operating loss of $2.12 vs. EPS of $1.02, $0.63 wider than our loss estimate. Results were hurt by the writedown of securities, higher provisions, restructuring charges and a 27% sequential drop in loan volume, reflecting higher standards and transfer of production to CFC's bank operation. The one bright spot was CFC's loan servicing sector, which posted pre-tax earnings of $681 million before the impact of valuation adjustments. Non-performing assets/assets jumped to 1.65% from 1.26% in the second quarter. CFC expects to be profitable in the fourth quarter. Will update after conference call. - S. Plesser
S&P REITERATES BUY OPINION ON SHARES OF MERRILL LYNCH (MER; 65.00)
An unconfirmed report in the New York Times says that Merrill Lynch CEO Stanley O'Neal's job may be in jeopardy after he approached a Wachovia Corp. (WB; 45.70) executive to broach the subject of a possible business combination, without prior approval of Merrill's board. Following the company's steep third quarte loss, we would not be surprised if his position was being reviewed, but we don't expect any large M&A transaction in the near term. We continue to believe Merrill shares are undervalued, and we are keeping our 12-month target price at $79, 1.8 times projected book value, in line with peers. - M.Albrecht
S&P UPGRADES OPINION ON SHARES OF DEVRY (DV; 50.90) TO BUY FROM HOLD
Shares are up 27% this morning as September-quarter EPS of $0.40 vs. $0.13 about doubles our forecast and Street's, reflecting low double-digit gains in undergrad and grad students, and savings from cost initiatives. Margin gains will likely not be as high in coming periods, as costs have also been reduced by delays in filling open positions and starting projects. But we think DV is clearly firing on all cylinders. We are raising our fiscal year 2008 (June) EPS estimate by $0.35 to $1.60, fiscal year 2009's by $0.40 to $1.90, and our target price by $28 to $64 on our increased EPS and cash flow estimates. - M.Jaffe
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