S&P Picks and Pans: Lehman, AT&T, Electronic Arts, CIT Group, Willis Group, Hologic

S&P MAINTAINS HOLD RECOMMENDATION ON SHARES OF LEHMAN BROTHERS (LEH; 32.29):

LEH reports preliminary May-quarter loss of $5.14, vs. EPS of $2.21, wider than our $0.53 loss estimate. Asset and hedge write-downs led to the outsized loss. LEH also announced it will raise $6 billion through sales of common and covertible preferred stock; pricing details are not available. We are encouraged by LEH's moves to shrink its balance sheet and bring leverage down, and we think this capital raise will further that cause. We are lowering our fiscal year 2008 [November] estimate to a loss of $2.60 from EPS of $2.61. We are also reducing our target price by $3 to $35, 1.0 times projected book value. -M. Albrecht

S&P MAINTAINS STRONG BUY OPINION ON SHARES OF AT&T INC. (T; 38.01):

AT&T's handset partner Apple (AAPL; 177.60) has announced plans to make a new, 3G version of the iPhone available July 11 for $199, which we believe will spur continued demand for T's wireless service. Even with high wireless penetration in the U.S., we contend that T will benefit from increased store traffic following the release of the new device. In our view, while T has growth prospects through broadband and cost savings, wireless data growth remains a key driver for the telco. We maintain our 12-month target price of 45, and believe T's 4% dividend yield adds to its appeal. -J. Moorman, CFA

S&P UPGRADES SHARES OF ELECTRONIC ARTS TO HOLD FROM SELL, ON VALUATION (ERTS; 46.92):

ERTS shares have fallen below our 12-month target price, which we keep at 53 and is based on a blend of our DCF and p-e analyses. We remain cautious about ERTS's tender offer for Take-Two Interactive Software (TTWO; 27.10), and we believe some of ERTS's key franchises such as Madden NFL have become jaded. However, we believe these factors are mitigated by modest success of the Army of Two and Rock Band video games. We see revenue accelerating in the second half of calendar 2008, as the company releases new titles developed by studios obtained from recent acquisitions. -J. Yin

S&P UPGRADES RECOMMENDATION ON SHARES OF CIT GROUP TO HOLD FROM SELL (CIT; 10.15):

The company has lined up $3 billion in funding through a 15-year committed securities-based financing line. Residential mortgages are not eligible collateral for the loan, which does not enable CIT to monetize those assets but should help to keep funding costs down, in our view. Combined with the expected sale of its railcar leasing business, we think CIT has improved its funding position considerably, though consumer struggles will probably continue to pressure results. We expect CIT's discount to its book value to decrease, and we are raising our target price by 3 to 11. -M. Albrecht

S&P MAINTAINS HOLD OPINION ON SHARES ON WILLIS GROUP HOLDINGS (WSH; 35.01):

WSH announces it is acquiring Hilb Rogal & Hobbs (HRH; 44.4) for $46 a share [50% cash, 50% stock, subject to a collar], an equity value of $1.7 billion; expected to close in the fourth quarter, pending approvals. The company sees the deal being accretive to cash EPS by 7% in 2009, 10% in 2010 and 14% in 2011. We believe the proposed transaction is a positive for WSH, since we think it will dramatically increase the scale of its North American operations and strengthen its positions in key growth areas such as personal lines, real estate, and health care. -B. Howlett

S&P MAINTAINS BUY OPINION ON HOLOGIC SHARES (HOLX; 22.45):

HOLX is to buy Third Wave Technologies (TWTI; 11.1) for $580 million in cash, subject to approvals. TWTI markets molecular diagnostics reagents for Cystic Fibrosis, Hepatitis C, cardiovascular risk and other diseases. However, we think the main drivers for this deal are two HPV tests awaiting FDA approval, given the rapid growth in global HPV testing. HOLX sees $0.02-$0.03 EPS dilution in fiscal year 2008 [September] and $0.10 in fiscal year 2009. Despite rising competition in the HPV testing market and limited visibility in HPV clinical data, we think cost synergies can greatly reduce the dilutive impact. -R. Gold