S&P Picks and Pans: Freddie, Alcoa, JP Morgan, Sears, XM

S&P MAINTAINS HOLD RECOMMENDATION ON SHARES OF FREDDIE MAC

FRE; $25.09

Freddie posts a fourth-quarter loss of $3.97 per share, vs. an 85-cent loss one year earlier, $1.26 wider than our estimate. Although net interest income rose sequentially, earnings were hurt by securities writedowns and derivative losses. Non-interest losses totaled $2.1 billion in the fourth quarter, $1.4 billion more than the third. Earnings were also hurt by losses from credit guarantees, $1.3 billion in the fourth quarter vs. $390 million in the third, as these securities needed to be marked down to reflect the likelihood of higher future losses. Core capital totaled $3.5 billion above mandate. We will update after Freddie’s conference call. /S. Plesser

S&P DOWNGRADES OPINION ON SHARES OF ALCOA INC. TO HOLD FROM BUY

AA; $38.46

Shares of Alcoa are down this morning, likely reflecting news that Aluminum Bahrain, a company controlled by the nation of Bahrain, has filed a $1 billion lawsuit alleging overcharging, fraud and bribery by the company. Alcoa responds that it has not had a chance to review the allegations. Our downgrade reflects valuation. We continue to estimate EPS of $3.05 for 2008, mostly on cost reductions. But with Alcoa currently trading with just modest upside to our P/E-based 12-month target price of $42, we would hold the shares, but not add to positions. /L. Larkin

S&P REITERATES BUY RECOMMENDATION ON SHARES OF JPMORGAN CHASE

JPM; $42.84

Following yesterday’s investor conference, we are lowering our 2008 operating EPS estimate to $3.92 from $4.10. We are also reducing our target price by $7 to $51, 13X that estimate, a premium to peers. We expect losses in JPM’s home equity business to rise markedly in the firast quarter and continue rising throughout 2008. We also expect pressure on JPM’s leveraged loan portfolio and its market-sensitive businesses. However, we think JPM remains better positioned than many of its peers, with a good handle on its risk-management, and a solid capital base with a Tier-one capital ratio of 8.4%. /F. Braden, CFA

S&P MAINTAINS SELL OPINION ON SHARES OF SEARS HOLDINGS

SHLD; $102.73

January-quarter operating EPS of $3.04, vs. $5.36 one year earlier, beats our estimate by 27 cents on lower-than-expected expense growth. Same-store sales fell 4.0% at Sears and 5.2% at Kmart as both businesses were negatively impacted by lackluster assortments and increased competition. While we do not foresee a near-term reversal in the company’s declining sales and margin trends, we look for low capex and reduced share buybacks to improve cash flow. We cut our fiscal 2009 [Jan.] operating EPS estimate by $1.00 to $4.85 but reiterate our 12-month target price of $83 based on our discouned cash-flow [DCF] analysis. We would sell. /J. Asaeda

S&P REITERATES BUY RECOMMENDATION ON SHARES OF UNITED TECHNOLOGIES

UTX; $72.22

At an investor conference, UTX reaffirms its earlier 2008 outlook for EPS of $4.65-$4.85. We are maintaining our estimate at $4.80, which would represent a 12% increase over ’07′s $4.27. We see 2008 growth driven by Otis and UTC Fire & Security units amid global demand for infrastructure, and by Sikorsky, Hamilton Sundstrand, and Pratt & Whitney on strong global aerospace demand. We expect slower growth at Carrier amid continued effect of the U.S. housing market slowdown. We are keeping our 12-month target price at $84. /R. Tortoriello

S&P MAINTAINS STRONG SELL OPINION ON SHARES OF XM SATELLITE RADIO

XMSR; $12.49

Before 25 cents of non-recurring charges, XM’s fourth-quarter loss per share of 53 cents, vs. a 72-cent loss one year earlier, 2 cents narrower than S&P’s estimate and 10 cents narrower than the Street consensus view. Fourth-quarter net adds of 460,000, mainly on auto OEM gains, was a bit shy of tempered projections, though we saw modest gains in churn and conversion to paying customers, vs. higher costs than expected per gross add, which could slow free cash. Fundamentally, we view 2008 as critical, with much also riding on regulatory call on proposed merger with Sirius (SIRI) . We keep our target price at $10 on relative ratio of enterprise value to sales. /T. Amobi, CPA, CFA