S&P Picks and Pans: Citigroup, CBS, Gap, Whole Foods, Dell

Plus more analyst opinions on stocks making headlines in Friday's market

11/21/2008- 11:33am S&P DOWNGRADES SHARES OF WHOLE FOODS MARKET TO STRONG SELL FROM HOLD

WFMI; 8.44

We view Whole Foods as our worst-positioned food retailer in this weakening economic environment. We believe its high-priced offerings along with rising competition exposes it to significant earnings risk as consumers trade down in an effort to save money. Based on our expectation of a mid-single-digit percentage decline in comparable-store sales for fiscal 2009 (Sept.), we are lowering our EPS estimate by $0.11 to $0.79, excluding $0.19 impact from equity infusion, which we expect will close in early December. We cut our 12-month target price to $4 from $14 on updated comparative and P/E analyses. /J. Agnese

11/21/2008- 11:27am S&P MAINATAINS STRONG SELL OPINION ON CLASS B SHARES OF CBS CORPORATION

CBS; 4.45

CBS's dividend now implies what increasingly we view as a potentially unsustainable yield of 24%, coming off arguably the worst performance streak in the company's history, with little to suggest a potential end in sight. While CBS's relatively ample but declining free cash could help sustain near-term financial stability, we see current issues compounded by lingering clouds over ongoing debt refi talks between lenders and CBS Chairman Sumner Redstone's controlling vehicle, National Amusements, which we continue to believe raises the potential specter of fire-sale asset sales. /T. Amobi, CPA, CFA

11/21/2008- 10:13am S&P REITERATES STRONG BUY OPINION ON SHARES OF J.M. SMUCKER

SJM; 40.93

Before certain special items but including adverse mark to market of some commodity hedges, October-quarter EPS of $1.02 vs. $0.91 tops our estimate by $0.04. We expect Smucker to benefit from consumers eating more at home, and we have a generally favorable view of the recent Folgers acquisition. Excluding merger, restructure and integration costs, we estimate EPS of $3.47 in fiscal 2009 (Apr.) and $3.70 in fiscal 2010. In view of volatile commodities and currencies, and likely less favorable pricing environment, we are lowering our 12-month target price to $53, from $58. Indicated dividend yield is about 3.1%. /T. Graves, CFA

11/21/2008- 9:44am S&P MAINTAINS HOLD RECOMMENDATION ON SHARES OF GAP INC.

GPS; 11.34

Gap reports October-quarter EPS of $0.35 vs. $0.30, two cents above our estimate. Net income rose 3.4% despite a comparable-store sales decline of 12%, as merchandise margin expanded 270 basis points, outweighing 150 bps deleveraging of fixed costs. Traffic was down 6%-10% across Gap brands, but its marketing heft could alter traffic flows this holiday. Gap's financials look good, with inventory down 13%, $519 million year-to-date free cash flow, and $1.6 billion in cash. Old Navy segment merchandise flows are beginning to reflect repositioning and we see new $5, $10 and $15 'shops' as a plus in today's environment. /M. Driscoll, CFA

11/21/2008- 9:09am S&P MAINTAINS HOLD OPINION ON SHARES OF CITIGROUP

C; 4.71

According to an unconfirmed report in the Wall Street Journal, Citi's executives have begun weighing the possibility of selling parts of or all of the company. We see this as a contingency plan to address possible customer attrition, particularly in the wealth management business and trading partners. Although Tier 1 capital projected at 10.4% (including TARP capital) seems adequate, liquidity is a concern if trading partners become skittish. We are lowering our target price to $8 from $15, a below-historical 0.44 times book value, to reflect a possible sale of the company. /S. Plesser

11/21/2008- 7:17am S&P UPGRADES RECOMMENDATION ON SHARES OF DELL TO BUY FROM HOLD

DELL; 9.81

Dell reports October-quarter EPS of $0.37 vs. $0.34, which is above our estimate for $0.35. Revenue decreased 3%, as weakness in desktop PCs and servers outweighed strength in laptop PCs, software and peripherals, and services. Margins were wider than we expected, reflecting better cost management and improved product mix. We are lowering our EPS estimates to $1.39 from $1.40 for fiscal 2009 (Jan.), and to $1.45 from $1.60 for fiscal 2010. We are reducing our P/E-based 12-month target price to $13 from $15, but believe valuation and improving margin outlook merit an upgrade of the shares. /T. Smith, CFA