S&P Picks and Pans: AIG, Citigroup, priceline.com, Nvidia, Circuit City, Activision

S&P MAINTAINS HOLD RECOMMENDATION ON SHARES OF AMERICAN INTERNATIONAL GROUP (AIG; 44.15):

AIG posts first quarter operating. loss of $1.41, vs. operating EPS of $1.68, worse than our $1.10 loss estimate. Results exclude investment losses, FAS 133 charges and mark to market writedowns. We expected weakness in AIG's outsized, in our view, mortgage-related exposures, and are not surprised by AIG's plan to raise $7.5 billion in capital. But we are troubled by what we view as a pretty significant deterioration in a number of core insurance underwriting lines. We keep our 2008 operating EPS view of $2.50, but this forecast assumes underwriting results improve. We think AIG is long overdue for a major restructuring. -C. Seifert

S&P MAINTAINS HOLD RECOMMENDATION ON SHARES OF CITIGROUP (C; 24.30):

At today's meeting, Citigroup targets a $400 billion reduction in legacy assets [nearly 20%], 9% revenue growth over 2-3 years, a 58% efficiency ratio, ROE of 16-18%, and a continuing focus on Wealth Management and Latin American and Asian growth. While we believe the company's capital position is more sound following the recently announced capital infusions, we view the credit markets as still in turmoil and we expect further writedowns. Citi still has about $29 billion of total direct subprime exposure. We are keeping our target price at 26, 1.25 times book value, in line with peers. -E. Oja, S. Plesser

S&P UPGRADES OPINION ON SHARES OF PRICELINE.COM TO HOLD FROM STRONG SELL (PCLN; 123.78):

Shares are indicated materially higher in pre-market trading, as PCLN posts first quarter EPS of $0.61, vs. $0.38, after impact of stock-based compensation; $0.08 above our forecast. Revenues rose 34%, beating our 31% forecast, on continuing strength in international business and a substantial acceleration in U.S. growth. We are raising our EPS forecast for 2008 to $4.95 from $4.55, and 2009's to $6.00 from $5.60. We are lifting our 12-month target price to 155 from 105, on revised peer and DCF analyses. We no longer believe PCLN will be hurt by macroeconomic and travel industry challenges. -S. Kessler

S&P UPGRADES OPINION ON SHARES OF NVIDIA CORP. TO BUY FROM HOLD (NVDA; 21.95):

Nvidia posts April-quarter EPS of $0.30, vs. $0.22, $0.03 below our estimate. Sales fell 4% sequentially, reflecting seasonality. Gross margin narrowed more than expected due to problems related to mismanaged product transitions. Operating costs increased on higher headcount from recent acquisitions, which led to a lower operating margin. We are reducing our fiscal year 2009 [January] EPS forecast by $0.03 to $1.40 to reflect April-quarter results. Though we see near-term margin risks, we think growth generally remains on track and we believe the shares are undervalued. We maintain our 12-month target price of 26. -C. Montevirgen

S&P REITERATES HOLD RECOMMENDATION ON SHARES OF CIRCUIT CITY (CC; 5.23):

CC agrees to allow Blockbuster (BBI; 2.50, NR) and Carl Icahn to conduct additional due diligence, and will continue to explore strategic alternatives to enhance shareholder value. A merger between CC and BBI still seems like a mismatch to us, and we fail to see synergies beyond distribution cost savings. However, while we remain skeptical that BBI will be able to obtain necessary financing on its own, Carl Icahn's willingness to buy the company if need be increases the possibility that CC will be sold, in our view. Our target price remains 6. -M. Souers

S&P MAINTAINS BUY RECOMMENDATION ON SHARES OF ACTIVISION (ATVI; 29.75):

March-quarter EPS of $0.14, vs. a loss of $0.05, is $0.10 above our estimate. Revenue grew 93% to $602 million, $202 million above our forecast, driven by strong sales of Guitar Hero and Call of Duty. Despite a difficult comparison with fiscal year 2008 [March], ATVI sees non-GAAP fiscal year 2009 revenue rising 7%, on larger installed console base and higher number of stockkeeping units of the two key games. We are positive on pending merger with Vivendi Games, expected to close in first half 2008, and raise our fiscal year 2009 operating EPS projection $0.14 to $1.28, and target price by 3 to 36 based on a blend of relative metrics. -J. Yin