S&P Picks and Pans: Sony, E*Trade, EMC, Schering-Plough
S&P MAINTAINS HOLD OPINION ON AMERICAN DEPOSITARY RECEIPTS OF SONY CORP.
Shares are higher today on an unconfirmed Wall Street Journal report that a Dubai investment firm controlled by the Middle Eastern Emirate's ruler has bought an undisclosed stake of less than 5% in Sony. We think the investment provides a positive signal for Sony, as its senior management, led by CEO Howard Stringer, implements the latter stages of a 3-year turnaround plan. Also, we are encouraged by signs Sony's recent price-cut on the PS3 console could spur incremental demand during the critical holiday season, amid stiff competition from Microsoft's (MSFT) Xbox 360 and Nintendo's Wii. /T. Amobi, CPA, CFA
S&P MAINTAINS HOLD OPINION ON SHARES OF E*TRADE FINANCIAL
According to an unconfirmed report by CNBC, E*Trade is pursuing a merger with several suitors, including Ameritrade (AMTD) and Charles Schwab (SCHW). We believe E*Trade's deteriorating mortgage portfolio would add complexity to any sale; given the likelihood of further credit deterioration, we think it would be difficult for a potential buyer to correctly value E*Trade's mortgage portfolio. Moreover, if a purchase agreement is reached, regulators may require that much of the proceeds be put into E*Trade's bank. Our target price remains $6.00. /S. Plesser
S&P REITERATES BUY OPINION ON SHARES OF EMC CORP.
While we are cutting our target price by $4 to $24 to reflect a lower market valuation of peers in our blended valuation, we believe EMC's leadership position in the external disk storage market, as well as its acquisition synergies, new product introductions and international expansion are key reasons to own the stock. We view the recent pullback in the share price as an enhanced buying opportunity in a company that we think has significant growth opportunities resulting from the increasing need to manage secure access to complex data and applications. /J. Hingorani
S&P REITERATES STRONG BUY RECOMMENDATION ON SHARES OF SCHERING-PLOUGH
FDA accepts a New Drug Application for asenapine, a fast-dissolving, sublingual tablet for psychotic disorders that, with 4 other promising Phase III compounds, came to Schering via its purchase of Organon Biosciences. We think Schering, with synergies from Organon, a relatively robust late-stage pipeline, and minimal generic exposure, should rank among the fastest growing players in the big pharma space in coming years. We think Schering is attractively valued, with a P/E-to-growth of 1.1X our estimated 3-yr EPS growth, vs. a sector P/E-to-growth of 1.4X. We keep our $37 target price, based on discounted cash-flow assumptions. /H. Saftlas
S&P REITERATES HOLD RECOMMENDATION ON SHARES OF RESTORATION HARDWARE
Restoration Hardware has received a $6.75 per share cash bid for its shares from Sears Holdings Corp. (SHLD). Sears Holdings had recently disclosed its 13.7% stake in the company and attempted to submit a binding acquisition proposal, which was denied by RSTO's board. Under the terms of its merger agreement with Catterton Partners, RSTO has until 12/13 to solicit higher bids. While we believe that Restoration Hardware would choose to merge with Catterton Partners over Sears Holdings, as the chances of a complete overhaul to the company's business would be unlikely, we think Restoration Hardware will continue to explore other opportunities. /M. Souers
S&P MAINTAINS BUY OPINION ON AMERICAN DEPOSITARY SHARES OF TELECOM ITALIA
THe company's controlling shareholders, including four Italian financial institutions, have named new leadership for the telecom carrier, pending board approval, including Franco Bernabe, former head of Telecom Italia and CEO of Eni (E), to the CEO position. We believe the outgoing management team had strong execution, but that Telecom Italia also performed well under Bernabe in 1998. We think Telecom Italia's future strategy will be largely determined by the financial institutions rather than co-owner Telefonica (TEF), which we think will have limited involvement in Telecom Italia's domestic telecom operations. /C. Perea