S&P Picks and Pans: Bear Stearns, Microsoft, Ford, UNH

S&P REITERATES HOLD OPINION ON SHARES OF BEAR STEARNS

BSC; $76.25

An unconfirmed report in the Wall Street Journal today states that James Cayne is expected to step down as CEO of Bear, but he will remain chairman. According to the report, President Alan Schwartz, an executive with investment banking experience, is expected to be named CEO. We applaud the move to separate the two posts and believe it will result in better risk oversight. But we think a number of risks remain, including recent losses that have likely caused reputational harm. We are reducing our target price by $17 to $85, 1.0X projected book value, a discount to peers. /M. Albrecht

S&P REITERATES STRONG BUY OPINION ON SHARES OF MICROSOFT

MSFT; $34.62

Microsoft announces that it will offer to acquire Norway's Fast Search & Transfer, a leading provider of enterprise search solutions, for about $1.2 billion. Stakeholders representing 35% of the outstanding stock have already accepted Microsoft's offer, and Fast's board has unanimously recommended that remaining shareholders do the same. We believe this transaction will be consummated by mid-year, pending approvals, and see it as a sound strategic fit for Microsoft. In particular, we believe Fast has very appealing technology and challenges it faced in 2007 were largely from internal issues. /J. Yin, S. Kessler

S&P KEEPS HOLD RECOMMENDATION ON SHARES OF FORD MOTOR

F; $6.28

We view the company's plan to invest $500 million to expand its Indian operations as important for its long-term growth there. We expect the Indian market to continue its rapid growth in vehicle sales amid swift economic gains. Although much of India's passenger car volume is for relatively small vehicles, compared to what sells in the U.S., we think it is critical for major non-Indian automakers to participate in that expanding market. With spending spread over three years, we believe the investment should not unduly strain struggling Ford's cash needs, and we keep our hold opinion. /E. Levy, CFA

S&P REITERATES BUY OPINION ON SHARES OF UNITEDHEALTH GROUP

UNH; $56.88

Given UNH's expected commercial member decline in start of 2008, we are encouraged by its plan to expand its AmeriChoice public sector business by purchasing Unison Health Plans. Unison, which sees $950 million in 2007 revenue, offers health plan coverage via Medicaid, State Children's Health Insurance Programs and Medicare Special Needs Plans to 370,000 people. Terms were not disclosed, but UNH sees the deal closing by mid-2008, pending necessary approvals, and being modestly accretive to EPS the first year after closing. We will revisit our EPS model upon closing. /P. Seligman

S&P REITERATES HOLD RECOMMENDATION ON SHARES OF U.S. BANCORP

USB; $29.13

Ahead of U.S. Bancorp's earnings report scheduled for January 15, we are lowering our Q4 and 2007 EPS estimate by 2 cents each, to 66 cents and $2.61, based on the bank's Midwestern exposure and our expectation of continued pressure on its commercial real estate portfolio. In our opinion, however, U.S. Bancorp remains one of the best capitalized banks in our coverage group and generates strong fee-based revenue from its payment services business. We are keeping our 12-month target price of $37, 12.9X our $2.87 2008 EPS estimate, in line with U.S. Bancorp's historical average. /F. Braden, CFA

S&P MAINTAINS HOLD RECOMMENDATION ON SHARES OF WEIGHT WATCHERS INTERNATIONAL

WTW; $45.62

For 2008, we are forecasting total revenue growth of 5.7%, led by WeightWatchers.com. We expect 5% growth in fees related to meetings and 6% growth in product sales. We look for modest operating margin erosion, primarily on an estimated increase in the company's SG&A expense ratio. We expect interest expense to decline by almost 20%, as the company uses free cash flow to reduce debt associated with the repurchase of 19 million shares in early 2007. We are maintaining our 2008 EPS estimate of $2.81 and our P/E-based 12-month target price of $55. /L. Braverman, CFA