S&P Picks and Pans: CNET, Barrick, SAP, Sallie, Cognizant

S&P REITERATES STRONG SELL OPINION ON SHARES OF CNET NETWORKS

CNET; $8.56

According to an unconfirmed New York Times report, a group of investment funds has amassed a 21% interest in CNET and is seeking to take over a majority of the board. As per the article, about two weeks ago the funds detailed their proposal to CNET in a letter and CNET rejected it, asserting the proposal allows for a takeover without a premium. While the report is unconfirmed, we note shares rose 27% from 11/26-12/31. We do not necessarily think this appreciation was coincidental and we think the stock already reflects this interest. Moreover, CNET has multiple takeover defenses. /S. Kessler

S&P DOWNGRADES RECOMMENDATION ON SHARES OF BARRICK GOLD TO SELL FROM HOLD

ABX; $48.06

Our downgrade is based on valuation. We continue to estimate operating EPS of $1.80 in 2007 and EPS of $2.15 in 2008, assuming a higher gold price this year. But following a recent sharp rise in the share price, we think Barrick is overvalued at 22.3X our 2008 estimate. Long-term, we see Barrick's EPS increasing on a higher gold price, a good pipeline of growth projects, and greater exposure of its sales to spot gold. But trading above our P/E-based 12-month target price of $46, we find Barrick shares unattractive. /L. Larkin

S&P MAINTAINS HOLD RECOMMENDATION ON AMERICAN DEPOSITARY SHARES OF SAP AG

SAP; $48.22

We are cutting our fourth-quarter sales growth outlook to 12% from 15%, on a slowing U.S. economy and foreign currency impact. We see 15% higher software sales, but note year-ago comparisons are not tough. We are trimming our fourth-quarter earnings per ADS estimate by 4 cents to 89 cents, vs. 87 cents, and full 2007's by 4 cents to $2.27. We still see $2.55 for 2008. We are cutting our target price by $7 to $55 on relative and intrinsic measures, including 19.7X P/E on 2008, in line with S&P 500 software peers. We see challenges from SAP's push deeper into the mid-market and pending acquisition of Business Objects (BOBJ). /Z. Bokhari

S&P DOWNGRADES SHARES OF SALLIE MAE TO HOLD FROM BUY

SLM; $18.82

The downgrade reflects our concerns about declining margins resulting from adverse legislation and higher financing costs. SLM is in the midst of refinancing $30 billion of short-term debt, and we believe that terms will be unfavorable and likely curtail FFELP loan growth. Although the area of private student loans is a viable option, funding constraints will likely limit growth until credit markets open up. We are reducing our 2008 operating EPS estimate by 49 cents to $1.93, and cut our 12-month target price by $5 to $20, 10.4X that estimate, a discount to historical levels. /S. Plesser

S&P REITERATES STRONG BUY OPINION ON SHARES OF COGNIZANT TECHNOLOGY

CTSH; $31.41

After reviewing our financial model, we are lowering our 2008 EPS estimate by 2 cents, to $1.46. The reduction reflects some increased concern on our part regarding rising expenses this year. Even so, we think Cognizant will be able to improve operations enough to offset most of the headwinds we expect, primarily through increased utilization and cost controls. We continue to see revenue growth of 36% in 2008, following what we expect was 50% growth in 2007. We are keeping our fourth-quarter 2007 EPS estimate of 31 cents, as well as our 12-month $40 target price. /D. Cathers

S&P REITERATES HOLD RECOMMENDATION ON AMERICAN DEPOSITARY RECEIPTS OF PEARSON PLC

PSO; $13.57

We have a positive view of Pearson's recent acquisitions of Harcourt and eCollege, which we think will boost the company's high-growth, high-margin digital business segment. But we are becoming increasingly concerned about the risk of recession in the U.S., where Pearson derives about two-thirds of its revenues. Based on a higher risk outlook, we are lowering our 12-month target price to $15 from $18 on revised discounted cash flow analysis. Incorporating recent declines in the U.S. dollar vs. UK pound exchange rate, we are also lowering our 2008 earnings per ADR estimate by 10 cents to 87 cents. /A. Wisch