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S&P Picks and Pans: MBIA, Fannie Mae, Toyota, Williams-Sonoma, Tiffany, Brown-Forman

August 29, 2008

S&P MAINTAINS HOLD OPINION ON SHARES OF MBIA INC. (MBI; 11.98):

MBI agrees to reinsure a portfolio of U.S. public finance bonds, par value of roughly $184 billion, insured by Financial Guaranty Insurance Company. MBI will receive unearned upfront premiums of roughly $741 million. Although this transaction allays some of our near-term capital concerns, we are still wary that significant structured finance losses may result in the company ultimately needing to raise additional funds. We are raising our 12-month target price by $2 to $15, which assumes that MBI will trade at roughly 83% of our 2008 book value estimate, a discount to peers. -S. Plesser, C. Seifert

S&P KEEPS HOLD RECOMMENDATION ON SHARES OF FANNIE MAE (FNM; 6.48):

FNM announces that it is replacing, from within, its chief business officer, chief financial officer and chief risk officer. We do not think that the changes will have a major effect on what we see as the most significant challenge facing FNM, which is when, or even if, it will need to raise capital, along with the terms of any such transaction. We do expect that FNM will eventually need to raise capital. But we believe it has sufficient capital to weather the next few quarters’ expected losses, and we do not think that the Treasury needs to take any immediate action. -K.Cole-CFA

S&P REITERATES HOLD RECOMMENDATION ON ADSS OF TOYOTA MOTORS (TM; 88.51):

TM cuts its calendar 2009 sales forecast to 9.7 million units, down from a year-ago target of 10.4 million, but still up 2% from its recently lowered 9.5 million 2008 estimate. The U.S. market is a drag as demand here continues to shrink, and we expect both TM and the industry to post year-to-year declines in August sales volume. We think weakening global growth is contributing to a potential slight drop in global vehicle demand in 2008, but we still expect gains in 2009, led by emerging-market demand. We have a favorable view of TM’s long-term growth prospects and balance sheet strength. -E. Levy-CFA

S&P MAINTAINS HOLD OPINION ON SHARES OF WILLIAMS-SONOMA (WSM; 16.73):

Excluding one-time items, July-quarter EPS of $0.08, vs. $0.24, is a penny shy of our estimate. Comp-store sales declined 11.7%, far worse than our projection of an 8.5% decline as a troubled housing market and overall consumer malaise pressured results. We see continued challenges through at least calendar 2009, and are lowering our fiscal year 2009 [January] and fiscal year 2010 operating EPS forecasts to $1.01 and $1.12 from $1.39 and $1.57. We also cut our DCF-based target price by $6 to $20. But despite near-term headwinds, we continue to favor what we see as long-term strength and growth potential of brands. -M. Souers

S&P REITERATES STRONG BUY RECOMMENDATION ON SHARES OF TIFFANY & CO. (TIF; 43.44):

July-quarter EPS were $0.63, vs. $0.48, on an 11% sales rise, compared with our estimate of $0.55 on a 10% rise. Gross margin expanded 250 bps, partly offset by deleveraging of SG&A expenses on 1% same-store sales decline. EBIT margin rose 100 bps to 17%. We view this as a great quarter in a difficult environment as TIF executes on its global expansion, which had 13% revenue rise in fiscal year 2008, attracting new customers. European comp-store sales rose 11% and Asia/Pacific [x-Japan], rose 13%. We see TIF’s strong brand heritage and product offerings mitigating weak consumer spending trends. -M. Driscoll-CFA

S&P KEEPS BUY OPINION ON SHARES OF BROWN-FORMAN (BF.B; 73.08):

July-quarter operating EPS of $0.86, vs. $0.77, misses our estimate by $0.02 on greater gross margin deterioration than we forecast. Net sales rose nearly 7%, ahead of our view, and operating expense control was excellent. Trends in Western Europe deteriorated, but we look for strong Eastern European depletions to continue, and see increased off-premise investment and expanding distribution of newly acquired brands supporting sales growth. On higher raw material costs, we trim our fiscal year 2009 [April] EPS forecast by $0.03 to $3.91. We keep our $85 price target, blending our DCF and p-e analyses. -E. Kwon-CFA




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