S&P Picks and Pans: Time Warner, Medco, GM, IAC/InterActiveCorp, Polo Ralph Lauren

Analysts' opinions on stocks in the news Wednesday

S&P MAINTAINS HOLD OPINION ON SHARES OF TIME WARNER INC. (TWX; 10.83):

Before $0.01 net one-time charges, third quarter EPS of $0.31, vs. $0.24, beats our and Street estimates by $0.01 and $0.04. We think third quarter benefited from Time Warner Cable (TWC; 21.00) and Turner Networks (TNT, TBS, HBO), which bucked industry trends on both higher revenues and lower program costs. Film studio was hampered by comparisons, though starting to see savings from New Line reorganization. Amid eroding subscriber base, AOL's notable 6% ads drop could complicate its near-term strategy. Sharply deteriorating Publishing trends prompted a deeper restructuring. - T. Amobi - CPA, CFA

S&P REITERATES BUY OPINION ON SHARES OF MEDCO HEALTH SOLUTIONS (MHS; 40.94):

Third quarter operating EPS of $0.63, vs. $0.44, meets our estimate. Revenue grew 15% on 5.6% rise in adjusted scripts. We see MHS benefiting from clients seeking to control drug spend amid soft economy. We like its strong account retention, $5.4 billion in net new 2008 sales and $4.9 billion gained so far for 2009. We are encouraged by its 22% higher EBITDA/adjusted script. We see more expansion in generic drug penetration, but at slower pace, since new accounts have low mail penetration. Adjusting our model, we trim our 2008 EPS estimate $0.02 to $2.33, 2009's $0.03 to $2.77, but keep our $49 target price. -P. Seligman

S&P REITERATES SELL OPINION ON SHARES OF GENERAL MOTORS (GM; 5.94):

We think the Obama presidential victory and the coming shift in party representation in Congress increases in the likelihood of additional financial assistance to the automotive industry, above the already approved $25 billion in loans. Our expectation reflects the number of direct and indirect jobs at risk from the industry, as domestic automakers struggle amid a deep industry recession. Separately, on Nov. 7 we expect GM to post a third quarter loss per of $5.98, vs. an adjusted $2.80 loss, and for Ford (F; 2.19) to lose $0.89 per share, vs. a $0.19 loss. -E. Levy-CFA

S&P REITERATES BUY OPINION ON SHARES OF IAC/INTERACTIVECORP (IACI; 17.81):

After adjustments for certain non-recurring and non-cash items, IACI posts third quarter EPS of $0.25, vs. $0.17, $0.05 above our forecast. This year's figure excludes $0.39 related to the August spin-offs and a loss from debt extinguishment. Media and advertising revenues were weak, in our view, reflecting a de-emphasis on certain network partners and reduced marketing activity. Given economic challenges, we are cutting our EPS estimates for 2008 to $0.90 from $0.95, and 2009 to $1.10 from $1.20. Based on revised peer analysis, we are lowering our 12-month target price to $21 from $26. -S. Kessler

S&P REITERATES BUY RECOMMENDATION ON SHARES OF POLO RALPH LAUREN (RL; 49.24):

September-quarter EPS of $1.58, vs. $1.09, beats our $0.96 estimate. Sales rose 10%, EBIT margin rose 250 bps with improvements on cost of goods sold and SG&A. Tax rate was down 520 bps. Retail comp-store sales rose 5%, ranging from 4% decline at Club Monaco to an 8% rise at factory stores. Business slowed mid-September, continuing into October, and we cut December-quarter and March-quarter EPS estimates to $0.87 and $0.62, from $0.98 and $0.76. Long-term strategy is intact with near-term marketshare opportunities despite reduced discretionary spending and store traffic. We raise our fiscal year 2009 (March) EPS estimate $0.35 to $4.00. -M. Driscoll-CFA