S&P Picks and Pans: Fannie, Microsoft, Disney, Autodesk, Hitachi

S&P MAINTAINS HOLD OPINION ON SHARES OF FANNIE MAE

FNM; $26.07

Fannie’s fourth-quarter loss per share of $3.80, vs. EPS of 48 cents one year earlier, is $2.67 wider than our estimate. Results were hurt by higher-than-expected derivative losses of $3.2 billion, a $600 million markdown of investments, and a $2.0 billion increase in reserves. Although guaranty fee income rose 19%, credit issues more than offset the higher revenue. Fannie has upped its peak-to-trough estimate of home-price decline to 13%-17% from 10%-12%. Based on declining home prices, we expect further losses in 2008, which may require Fannie to raise added capital. We will update after Fannie’s 1 p.m. ET conference call. /S. Plesser

S&P REITERATES STRONG BUY RECOMMENDATION ON SHARES OF MICROSOFT

MSFT; $28.38

The European Union has fined Microsoft 889 million euros — about $1.35 billion — for charging “unreasonable prices” for licenses and documentation to developers wanting to make products compatible with the Windows desktop operating system. We believe most of these practices were addressed last week when Microsoft announced plans to increase the interoperability of its operating systems and key applications with competitors’ software. Although the fine is the largest ever for a company, it amounts to 14 cents share. Microsoft had $21 billion in cash and short-term investments at the end of December, 2007. /J. Yin

S&P MAINTAINS STRONG BUY OPINION ON SHARES OF WALT DISNEY COMPANY

DIS; $32.65

We share much of the bullish sentiment in this week’s Barron’s cover story, as Disneysteadfastly focuses on key priorities of content creation, international expansion and leveraging technology advancements. We expect CEO Iger to focus on those themes on keynote next month at McGraw-Hill Media Summit. Meanwhile, we think High School Musical and Hannah Montana have recently emerged as additions to Disney’s stable of key franchises. While still a near-term risk, December-quarter comments suggest that concerns on potential impact of consumer spending slowdown on theme parks may be overdone. /T.Amobi, CPA, CFA

S&P REITERATES BUY RECOMMENDATION ON SHARES OF AUTODESK

ADSK; $9.10

January-quarter operating EPS of 43 cents, vs. 41 cents one year earlier, matches our estimate. Revenue rose 20% to $599 million, $20 million above our view, driven by 52% growth in emerging markets and aided by favorable forex. However, the Americas region was weak, with 2% growth. Stronger revenues were offset by higher sales incentive bonuses. Autodesk plans to increase spending for sales and R&D. We are reducing our fiscal 2009 [Jan.] operating EPS estimate to $1.81 from $1.90, and our 12-month target price by $4 to $49, based on our lower earnings forecast. Despite our lowered target price, we view the shares as undervalued. /J. Yin

S&P REITERATES BUY OPINION ON SHARES OF CHICAGO BRIDGE & IRON

CBI; $45.99

CBI posts fourth-quarter EPS of 46 cents, vs. 40 cents one year earlier, 3 cents below our estimate. Revenue growth benefited from global strength in the energy sector and the Lummus acquisition. We see further demand for liquefied natural gas, energy processes and steel plate structures, and expect wider margins on lower labor costs, a better backlog mix, improved operating efficiencies, and accretion from Lummus. We are lifting our 2008 EPS estimate by 15 cents to $2.55. However, based on our revised relative and discounted cash-flow [DCF] analysis, we are cutting our 12-month target price by $15 to $55. /S. Scharf

S&P REITERATES STRONG SELL OPINION ON ADRS OF HITACHI

HIT; $74.63

December-quarter earnings per ADR of 32 cents, vs. 3 cents one year earlier, is 4 cents better than our estimate. We still have a bearish outlook for Hitachi in spite of growth from diverse business segments. We think the worldwide economic slowdown will impact results this year. Restructuring in the hard disk drive and display segments will lower margins, in our view. We think energy sector optimism will be offset by slowing capital spending, and we see the financial services segment being hurt by global credit woes. We are keeping our fiscal 2008 [Mar.] earnings per ADR estimate at $0.82 and our target price at $63. /J. Hingorani