S&P Stock Picks and Pans: RealNetworks, SunTrust, LSI, MGIC

S&P REITERATES HOLD OPINION ON SHARES OF REALNETWORKS

RNWK; $5.85

According to an unconfirmed report in today’s Wall Street Journal, Viacom’s (VIA.B; $37.60) MTV Networks plans to merge its online music offerings into a joint venture with RealNetworks, and Verizon Wireless, a venture of Verizon (VZ; $41.10) and Vodafone (VOD; $31.00), is expected to be a mobile distribution partner. We think a transaction like this would provide RealNetworks with new valuable content, branding and marketing opportunities. Moreover, with believe such a deal would portend the elimination of Viacom’s URGE music download service, and enable RealNetworks to gain related traffic and users. /S.Kessler

S&P MAINTAINS HOLD RECOMMENDATION ON SHARES OF SUNTRUST BANKS INC.

STI; $79.92

SunTrust announces it will reduce its workforce by 7.2% by the end of 2008. An after-tax charge of $45 million, or about 21 cents per share, by our calculations, will be taken in third quarter as part of SunTrust’s “E-Squared” Productivity and Efficiency Program, announced in January 2007. We are reducing our third quarter EPS estimate by 21 cents to $1.26, and our full-year 2007 estimate by the same amount to $5.73. We are keeping our hold recommendation and our 12-month target price of $90, which is based on a slight premium-to-peers 15.3X multiple on our forward four-quarter EPS estimate of $5.90. /E. Oja

S&P MAINTAINS HOLD OPINION ON SHARES OF LSI CORP.

LSI; $6.56

LSI agrees to sell its mobility chip business to Infineon (IFX; $14.64) for about $450 million in cash, subject to approvals, exiting the consumer space. We are neutral on the deal, expected to close in Q4 and to lower expenses by $25 million per quarter. We expect stock repurchases from proceeds of the planned sale, but believe challenges remain in filling the resulting revenue gap. We keep our 12-month target price at $7.50, 1.7X our 2007 revenue per share estimate, at the midpoint of historical levels. We see a lag in new strategies and design. /J. Hingorani

S&P MAINTAINS POSITIVE FUNDAMENTAL OUTLOOK ON OIL & GAS DRILLING SUBINDUSTRY

We are maintaining our positive outlook on the oil & gas drilling sub-industry despite the arrival of Category 5 Hurricane Dean to the Yucatan peninsula earlier this morning. Although we see some hurricane risk to drillers with rig assets located in Mexico’s Bay of Campeche, particularly Pride Intl. (PDE; $33.50) and Noble Corp. (NE; $95.80) , which have 11 and 8 jackups in Mexico, respectively, we believe that secular demand for drilling rigs, especially offshore and overseas, remains strong, and we expect further dayrate gains and strong utilization through 2008. /S. Glickman

S&P MAINTAINS NEUTRAL FUNDAMENTAL OUTLOOK ON PROPERTY-CASUALTY INSURERS

Our neutral stance reflects our view that excess underwriting capacity will continue to exert downward pressure on premium rates. This expectation is partly offset by our view that favorable claim trends in certain “long tail” casualty lines that emerged earlier this year will likely continue. As Hurricane Dean, now a category 3 storm, slams the coast of Mexico, we expect damage from the storm to be manageable for U.S.-based insurers. Our top picks are Allstate (ALL; $55.27), Chubb (CB; $50.70) and Hartford Financial (HIG; $88.30). /C.Seifert

S&P MAINTAINS SELL OPINION ON SHARES OF MGIC INVESTMENT

MTG; $35.10

MGIC files suit against Radian Group (RDN; $21.80), seeking information needed to complete its analysis of whether it is obligated to close the pending merger with Radian. In response, Radian claims that it is assessing the proprietary nature of the information should the merger fail to materialize. Although this latest development weakens our argument a bit, we continue to believe that MGIC will merge with Radian, but at a lower valuation than that of the share-swap ratio originally agreed to. We maintain our 12-month target price at $35. /S. Plesser