S&P Stock Picks and Pans: Anheuser, Yahoo, CA, Verigy, GTX
S&P DOWNGRADES OPINION ON SHARES OF ANHEUSER-BUSCH COS. TO HOLD FROM BUY
Shares are up sharply today after unconfirmed reports in the Wall Street Journal of prospective InBev interest in acquiring BUD. In view of industry consolidation and an existing InBev-BUD partnership, we see some logic to a possible merger of the companies. However, we would not expect a large amount of cost synergies from such a deal. We also do not expect
BUD management to be especially receptive to a potential bid. We are keeping our target price at $57, which represents our view that 19X our '08 EPS estimate of $3.00 is a reasonable price for BUD as a standalone company. /E. Kwon, CFA, T. Graves, CFA
S&P REITERATES HOLD OPINION ON SHARES OF YAHOO INC.
Yahoo made a series of SEC filings yesterday. It delayed its annual meeting from July 3 to "around the end of July," and announced that board member Edward Kozel has resigned. The company also indicated that, in addition to its nine current directors and Carl Icahn's slate of 10 nominees, 11 other unnamed parties wish to be considered for election to the board. We believe the push-back of the meeting will allow Yahoo to continue negotiations related to potential corporate transactions and possibly preempt or minimize unpleasant developments that could come to a head at the meeting. /S. Kessler
S&P REITERATES BUY RECOMMENDATION ON SHARES OF CA INC.
March-quarter EPS of 13 cents vs. a loss of 4 cents per share one year earlier, misses our 28 cents EPS estimate as CA incurred a $74 million restructuring charge and other one-time tax items. Revenues rose 8% to $1.09 billion, $14 million below our view. However, bookings increased 30%. CA sees 5%-7% revenue growth in fiscal 2009 (Mar.), driven by strength in international markets and aided by forex. We trim our fiscal 2009 EPS forecast by 2 cents to $1.35, reflecting $30 million additional restructuring charges, and our target price by $1 to $29. Despite our lowered target price, we believe the company is executing well and its shares are undervalued. /J. Yin
S&P REITERATES HOLD RECOMMENDATION ON SHARES OF AMERICAN AXLE
AXL and the International UAW have reached a contract agreement and ended a strike that impacted sales and profits for the company, its largest customer General Motors (GM) and other GM suppliers. The contract should sharply reduce AXL labor costs, including salary cuts for existing employees, and the union should protect some jobs and become more competitive for future production. We think the second-quarter impact will be greater than the $46 million first-quarter operating income hit estimated by the company, but we view the costs as investment in future domestic competitiveness for AXL. /E. Levy, CFA
S&P REITERATES HOLD OPINION ON SHARES OF VERIGY
April-quarter EPS of 23 cents, vs. 36 cents one year earlier, exceeds of our $19 cents estimate. Revenues fell 19% from the January quarter, in line with our expectation, as demand for memory products was soft. However, solid system-on-a-chip tester sales contributed to a wider gross margin. With tight expense controls, Verigy posted a better-than-expected operating margin. Verigy continues to execute top-line growth and to benefit from flexible operations. We are raising our fiscal 2008 (Oct.) EPS projection by 8 cents to $1.29 and our target price by $4 to $27 on higher relative metrics. Volatile shares are higher in premarket trading. /C. Montevirgen
S&P REITERATES STRONG BUY OPINION ON SHARES OF GTX INC.
Phase III acapodene study in preventing prostate cancer in patients with HG PIN lesions will continue, with final data set for mid-'09. While study did not reach interim efficacy target and GTXI will not file an NDA this year, we maintain a positive outlook for the study, given more lenient statistical threshold at final analysis. With a target price of $27, we would use any weakness today as an enhanced buying opportunity. We project acapodene approval for androgen deprivation therapy indication by year-end, and see late '08 catalyst in Phase IIb Ostarine study data. /S. Silver
S&P MAINTAINS BUY RECOMMENDATION ON SHARES OF UNIVERSAL CORP.
Before one-time charges of $9.6 million, UVV posts March-quarter EPS of 44 cents, vs. 65 cents one year earlier, missing our $1.01 forecast on a greater sales decline due to shipment timing and higher purchasing and processing costs than we forecast. We see flue-cured crops adequate for fiscal 2009 (Mar.) and burley crops improving over last year, but inventories are at low levels. We think margins will be pressured by price increases not fully passed on to customers, or as a result of a timing lag. We are cutting our fiscal 2009 EPS estimate by 25 cents to $4.25, but keeping our $68 target price, in line with peer multiples. /E. Kwon, CFA