S&P Picks and Pans: Berkshire, Countrywide, Deere, Staples, A&F
S&P MAINTAINS HOLD RECOMMENDATION ON CLASS A SHARES OF BERKSHIRE HATHAWAY
We are raising our 12-month target price on the shares of this insurance-based conglomerate by $15,000, to $140,000. The revised target price assumes the shares trade at 17.6X our 2008 operating EPS estimate of $7950 and at 2.2X our projection of year-end 2008 tangible book value. Although both of these metrics represent significant (more than 20%) premiums to the company's insurance peers, we believe the premiums are warranted by what we see as Berkshire's superior financial strength compared with most peers. /C. Seifert
S&P MAINTAINS HOLD OPINION ON SHARES OF COUNTRYWIDE FINANCIAL
Countrywide reiterates that it has enough liquidity to continue ongoing operations, stating that it has $35.4 billion in liquidity, up from $33.6B in September. It should also be able to tap FHLB loans and increase deposits. However, a possible decline in mortgage purchase activity by the government-sponsored enterprises will likely reduce Countrywide's ability to originate loans. We are lowering our 2007 and 2008 EPS estimates by 39 cents and 42 cents, to a loss of $1.54 and EPS of $1.60, and reducing our target price by $6 to $11, 6.9X our 2008 EPS estimate, a discount to historical levels. /S. Plesser
S&P REITERATES HOLD ON SHARES OF DEERE & CO.
October-quarter EPS of $1.88 vs. $1.20 beats our $1.39 estimate on stronger revenue in the agricultural equipment and commercial and consumer segments. We see robust demand for international farm equipment into 2008 and think gains in farm equipment, on solid global economies and robust demand for renewable fuels, will outweigh weakness in construction and forestry. Deere sees fiscal 2008 (Oct.) net income of $2.1 billion. We are raising our fiscal 2008 EPS estimate by 50 cents to $9.30; and our 12-month target price to $149 from $132, 16X our fiscal 2008 EPS estimate, a traditional mid-cycle multiple for Deere. /P. Wang
S&P REITERATES BUY RECOMMENDATION ON SHARES OF STAPLES INC.
Ahead of October-quarter earnings, to be reported on 11/27, we continue to find the shares attractive. We expect the company to post EPS of 41 cents on a comp store sales increase of 1.0%. While we believe back-to-school was successful in driving traffic, we think consumers are bargain-hunting more, and that margins will be adversely affected. Despite this, we believe that both International and North American Delivery businesses remain strong, and we are maintaining our fiscal 2008 (Jan.) and fiscal 2009 EPS estimates of $1.43 and $1.64, respectively. We keep our discounted cash-flow-based target price at $29. /M. Souers
S&P INITIATES COVERAGE ON SHARES OF LEUCADIA NATIONAL WITH HOLD OPINION
Leucadia is a diversified holding company with interests in timber and plastics manufacturing, telecommunications, real estate, energy and healthcare. The company's approach is to focus on return on investment and cash flow and its management continually evaluates dispositions and acquisitions. We think Leucadia's gaming and biopharmaceutical development units have the most growth potential. We forecast 2007 EPS of 26 cents and 2008's of 35 cents. We are setting a 12-month target price of $48, based on our book value metric. /S. Benway, CFA
S&P MAINTAINS STRONG BUY OPINION ON SHARES OF ABERCROMBIE & FITCH
October-quarter EPS of $1.29 vs. $1.11 is 6 cents shy of our estimate. Direct-to-consumer sales rose 48%, outpacing 13% total sales gain. Higher direct business expenses pressured operating margin, as did rise in wages and investment in A&F's 5th concept, which launches in January. We see broad consumer appeal of A&F's brands supporting low-single-digit same-store sales growth in the January-quarter despite tough retail conditions, although we also expect margin pressure from growth in direct sales. We trim our fiscal 2008 (Jan.) EPS estimate by 10 cents to $4.20 but reiterate our 12-month target price of $95. /J. Asaeda