S&P Picks and Pans: Xerox, AMAT, XL Capital, Celgene, M&I
S&P UPGRADES OPINION ON SHARES OF XEROX TO BUY FROM HOLD, ON VALUATION
Our upgrade follows a recent decline in share price. Xerox declares its first quarterly cash dividend in six years ahead of its New York analyst day presentation, in one of several actions we see marking a multi-year comeback to a relatively stable, moderate growth story in the document copying and management industry. Xerox reiterates a commitment to share buybacks, keeps guidance for 2007 EPS, and sees 2008 at $1.31-1.35, 2009 at $1.45-1.50. We keep our estimates of $1.19 for 2007, $1.35 for 2008, and $1.50 for 2009 with more confidence, and maintain our P/E-based 12-month $20 target price. /T. Smith, CFA
S&P REITERATES HOLD OPINION ON SHARES OF APPLIED MATERIALS
This morning AMAT announced an agreement to acquire Baccini, a supplier of crystalline silicon cell manufacturing solutions to the photovoltaic cell industry, for about $330 million in cash. We believe this planned transaction would accelerate and further expand AMAT's presence in the high growth solar technology business; we see the company's advancement in solar technology being its primary catalyst in fiscal 2008 (Oct.) and fiscal 2009. The acquisition is expected to close in early calendar 2008. We are maintaining our 12-month target price of $21. /A. Zino, CFA
S&P MAINTAINS HOLD RECOMMENDATION ON SHARES OF XL CAPITAL LTD.
We are lowering our 12-month target price on the shares of this Bermuda-based provider of insurance and reinsurance by $10, to $70. Our target price assumes the shares trade at 6.8X our 2008 operating EPS estimate of $10.35 and 1.3X estimated 2008 tangible book value. Both metrics represent a discount of about 30% to XL's peer group average. We believe this discount is warranted in light of what we see as contracting underwriting margins in 2008 and XL's higher risk mix of business as compared with many of its peers. /C. Seifert
S&P REITERATES BUY OPINION ON SHARES OF CELGENE CORP.
The company plans to acquire Pharmion Corp. (PHRM) for $72 per share, payable 1/3 in cash and 2/3 in stock, subject to certain approvals. Celgene expects the deal to close in second quarter 2008 and to be slightly dilutive in 2008 and accretive in 2009 and beyond. Despite the proposed deal's value of 11X trailing 12-month Pharmion sales, we see key synergies in acquiring Pharmion's European sales force, which should accelerate Revlimid expansion, prospects for Pharmion's lead product Vidaza for myelodysplastic syndromes, and Celgene regaining of the European rights to Thalomid. We are keeping our target price at $76. /S. Silver
S&P MAINTAINS SELL OPINION ON SHARES OF MARSHALL & ILSLEY
M&I announces that it has lending exposure of $282 million with Franklin Credit Management (FCMC), a troubled mortgage originator. At September 30, M&I had nearly $45 billion in total loans outstanding, with a reserve for non-performing loans of $453 million, and therefore the exposure to FCMC is about 0.6% of M&I 's loans. M&I says that all loans to FCMC are current, and estimates that the exposure to that company will not be material. We are keeping our 2008 EPS estimate of $2.93, and our 12-month target price of $29, a discount-to-peers 10.0X our 2008 EPS estimate. /E. Oja