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S&P KEEPS SELL RECOMMENDATION ON SHARES OF FREDDIE MAC (FRE; 9.70) AND FANNIE MAE (FNM; 13.41):



Shares are up in premarket after an unconfirmed WSJ report that lawmakers have agreed on an outline for legislation to support FRE and FNM. The Treasury proposed raising the GSE credit line and a potential equity injection. While we believe the legislation would be positive, we expect ongoing losses to weaken FNM's capital base. The Congressional Budget Office estimates the proposals may cost the government $25 billion. With the two GSE's combined market cap roughly $19 billion, we believe an injection of this size would be highly dilutive to shareholders. -K.Cole, CFA



S&P REITERATES HOLD OPINION ON SHARES OF YAHOO INC. (YHOO; 21.40):



Q2 EPS of $0.09, vs. $0.11, is $0.02 shy of our view [previously said EPS of $0.11 vs. $0.09]. Revenues exclude traffic-acquisition costs rose 8%, and from owned and operated sites rose 14%. Given economic headwinds and YHOO-specific challenges, we think company delivered solid results. We keep our 2008 and 2009 estimates. Following YHOO's settlement with activist Carl Icahn, we expect more aggressive actions to deliver shareholder value. YHOO did not repurchase shares in Q2 because of trading restrictions related to concluded proxy contest, but has $1 billion remaining in a prior authorization. -S. Kessler



S&P MAINTAINS HOLD RECOMMENDATION ON SHARES OF WASHINGTON MUTUAL (WM; 5.82):



WM posts Q2 loss of $6.58, vs. EPS of $0.92, significantly wider than our loss forecast and consensus on higher-than-expected provisions. We are encouraged by the company's improved capital ratios, which are mostly due to the recent $7.2 billion capital raise. But we believe WM will need to raise highly-dilutive capital if its residential mortgage portfolio deteriorates more than the forecasted $19 billion. We are widening our 2008 loss projection by $6.74 to an $11.06 loss, and cutting our 12-month target price by $1 to $6, roughly 0.5 times book value, below historical averages. -K. Cole-CFA



S&P REITERATES HOLD OPINION ON PFIZER SHARES (PFE; 18.74):



June-quarter adjusted EPS of $0.55, vs. $0.42, is a penny below our estimate. Revenue rose 9%, 7% from forex. Key drivers were Lipitor [ex-U.S.], Lyrica and Celebrex. But U.S. Chantix sales fell 35% on new black box warnings. We think the key EPS growth factor for PFE remains cost controls, with the company already accruing $1.2 billion in savings under a $1.5-$2 billion cost cut program. We believe stability in the $1.28 dividend is a high priority, and think PFE will continue to adjust costs to maintain it. Our target price remains $23, applying a discount-to-peers 9.8 times our $2.35 2008 estimate. -H. Saftlas



S&P UPGRADES OPINION ON SHARES OF TRAVELERS COS. TO STRONG BUY FROM BUY (TRV; 44.66):



TRV posts $1.50, vs. $1.73, Q2 operating EPS, above our $1.39 estimate and consensus, as favorable prior-year loss development and impact of share buybacks offset higher catastrophe claims and 18% lower investment income. We are maintaining our 2008 operating EPS forecast of $5.65 and trimming 2009's by $0.15 to $5.95. We view TRV as a well managed franchise with a high-quality balance sheet, poised to exploit opportunities for growth at the expense of some financially constrained peers. Our target price remains $55 -- 9.2 times 2009 EPS estimate, at the low end of historical averages. - C. Seifert



S&P MAINTAINS STRONG BUY OPINION ON AT&T SHARES (T; 31.82):



AT&T posts Q2 EPS of $0.76, vs. $0.70, before one-time items, $0.01 below our estimate. Revenues were above our forecast on stronger wireless and directory operations, but wireline voice was weaker. Despite more marketing costs, operating margin was in line. We are encouraged by AT&T's wireless revenue per user and churn metrics plus regional business revenue growth given the slowing economy, although we viewed broadband additions as light. We look to AT&T's morning call for the impact of the macroeconomy on broadband and video efforts in the second half 2008 that could limit EPS growth. -T. Rosenbluth



S&P REITERATES SELL OPINION ON ADSS OF ALCATEL-LUCENT (ALU; 6.05):



We remain concerned about slowing wireless market growth, which is suffering from vendor overcapacity and large exposure to a declining CDMA market. We believe a lot of credibility for a turnaround is based on the launch of a converged WCDMA/3G product later in the year. However, we believe it is unlikely many clients will await an as yet unproven product, and we foresee further market share loss in 3G in 2008. We expect dividend payments to be put on hold for 2008 as they were in 2007. Based on a blend of relative and DCF analysis, we keep our 12-month target price of $5.50. -C. VanDerElst