S&P Picks and Pans: Disney, Yahoo, Fannie Mae, Sprint Nextel, Covidien, NYSE, McKesson

S&P MAINTAINS STRONG BUY OPINION ON SHARES OF WALT DISNEY COMPANY (DIS; 33.73):

March-quarter EPS of $0.51 on 8% fewer shares, vs. year-ago $0.43, is $0.05 and $0.01 above S&P and Street estimates. On first look, results showed broad-based strength across theme parks, media networks and studio entertainment segments. In particular, we see no signs of a major recession-induced slowdown in attendance at theme parks. We continue to see potentially sizable upside with international distribution of Grey's Anatomy, Desperate Housewives and Lost. We also see major upside for recent franchises such as Hannah Montana and High School Musical. Will update after conference call. -T. Amobi-CPA,CFA

S&P REITERATES HOLD OPINION ON SHARES OF YAHOO (YHOO; 25.69):

Unconfirmed reports from the NY Times and WSJ say two of YHOO's primary shareholders would have accepted a buyout offer from Microsoft (MSFT; 29.57) of around $34/share. We estimate that Capital Research and Legg Mason together recently owned about 22% of YHOO's diluted shares. We think that even though MSFT offered only $33, a friendly deal could have been agreed to if YHOO was willing to reduce its asking price from a seemingly arbitrary and excessive $37. These revelations suggest talks could be resurrected, perhaps more directly involving YHOO's top shareholders. -S. Kessler

S&P MAINTAINS HOLD OPINION ON SHARES OF FANNIE MAE (FNM; 30.41):

Following FNM's first quarter conference call, we are widening our 2008 loss estimate by $2.68 to $6.50 on higher loss assumptions. We see provisions continuing to rise in line with chargeoffs, reflecting deterioration in FNM's Alt-A portfolio, 30% of which is in California and Florida. But we view positively the OFHEO's decision to reduce FNM's capital surplus to 15% from 20%, with plans to cut it an additional 5%-10% in September. We believe FNM will use this capital to increase market share, while it continues to expand guaranty margins. We keep our 30 target price, a historically low 1.3 times book value. -K. Cole-CFA

S&P MAINTAINS HOLD OPINION ON SHARES OF SPRINT NEXTEL (S; 8.72):

According to an unconfirmed report from the WSJ, Sprint Nextel is considering a spin-off or sale of its Nextel division. We believe that, with a new management team, Sprint is looking at various corporate actions such as asset sales. A spin-off of Nextel could make a potential sale of Sprint to Deutsche Telecom (DT; 17.90) a smoother transaction. However, it could also signify that subscriber losses are getting worse and Sprint is having difficulty coming up with a solution to maintain Nextel subscribers. We are keeping our 12-month target price of 10, based on 5.8 times our 2008 EBITDA forecast. - J. Moorman, CFA

S&P UPGRADES RECOMMENDATION ON SHARES OF COVIDIEN LTD TO BUY FROM HOLD (COV; 48.19):

March-quarter operating EPS of $0.66, vs. $0.68, was ten cents better than we anticipated, with upside fueled by better-than-expected organic growth in the medical device and imaging solutions units, gross margin improvement and a significantly lower tax rate than envisioned. We are raising our fiscal year 2008 [September] sales forecast to $9.9 billion from $9.6 billion, and our operating EPS estimate by $0.20 to $2.56. We also boost our fiscal year 2009 EPS forecast by $0.10 to $2.85. We think COV is executing well post-spinoff from Tyco and believe low double digit growth is sustainable. We raise our target price by 8 to 55. -R. Gold

S&P MAINTAINS HOLD OPINION ON SHARES OF NYSE EURONEXT (NYX; 69.43):

NYX posts first quarter operating EPS of $0.87, vs. $0.43, $0.14 above our estimate. The strong results reflect record quarterly transaction volume, with particular strength from the company's European operations. We believe cost synergies from recent acquisitions are starting to gain traction. Trading volume benefitted from recent volatility in the markets, which may subside if markets stabilize. To reflect strong first quarter results, we are raising our 2008 EPS forecast by $0.13 to $3.35. We are also lifting our target price by 10 to 75, 22.4 times our 2008 EPS estimate, in line with peers. -S. Plesser

S&P REITERATES STRONG BUY OPINION ON SHARES OF MCKESSON (MCK; 58.71):

March-quarter operating EPS of $1.04, vs. $0.85, beats our estimate by $0.04. We are encouraged by above-market U.S. direct-store drug supply sales growth, improved med-surg revenues, and continued strong demand for IT products/services. MCK is seeing new customers and higher sales per customer. Its margins widened more than we expected with the distribution margin up 7 basis points, despite a sharply lower LIFO credit, and the IT unit's up an impressive 480 basis points. We keep our $3.85 fiscal year 2009 [March] EPS estimate. We view execution and healthy cash flow as attractive. We keep our 74 target price. -P. Seligman