Picks of the Week: Beazer, DIRECTV, Google, Home Depot, Monsanto
May 21st, 2010 | Posted by stockNotable Wall Street analyst opinions on stocks in the news for the week of May 17-May 21:
May 17
Monsanto Co.: UBS Securities analyst Don Carson kept a buy rating on shares of Monsanto Co. (MON), the world’s biggest seed company, on May 17. He lowered a price target on the shares to $83 from $86.
In a note, Carson said he was reducing estimates to reflect “the prospect of no rebound” in prices for Monsanto’s Roundup broad-spectrum herbicide. Carson said the barrier to price improvement “is due more to competition from multinationals” like Syngenta AG (SYNN) and Dow Chemical Co. (DOW) than to excess inventories of Chinese-produces generic versions of the herbicide.
Carson said he expects Monsanto’s gross profit to remain in the $550 million range, reducing his EPS estimates for fiscal 2010 (ending August) to $3.00 from $3.10, for fiscal 2011 to $3.65 from $3.95, and for fiscal 2012 to $4.40 from $4.85.
Visa Inc.: SunTrust Robinson Humphrey equity analyst Andrew Jeffrey upgraded a rating on shares of Visa Inc. (V) to buy from neutral on May 17. He set a $96 price target on the shares.
On May 14, shares of MasterCard and Visa fell after the U.S. Senate approved an amendment that would empower the Federal Reserve to impose limits on debit-card fees collected by the biggest banks as part of the financial-overhaul bill. Merchants last year paid $19.7 billion in fees tied to debit transactions processed MasterCard and Visa, with more than half that amount paid to banks as interchange, according to the National Retail Federation.
The legislation could hurt revenue at MasterCard and Visa, which collect royalties from banks based on card-spending volumes.
In a note, Jeffrey said he believes “the long-term risk/reward in V shares is more compelling than at any time in last 12 months, growing regulatory risk notwithstanding”. He noted that while some investors will question the company’s valuation in light of the government’s “apparently growing regulatory zeal”, he contends that Visa’s business model is “inherently intact”.
The analyst said Visa’s EPS growth rate of over 20% is sustainable because of a combination of global organic revenue expansion, operating leverage and share repurchases.
May 18
Beazer Homes USA Inc.: Citigroup equity analyst Josh Levin raised a rating on shares of Beazer Homes USA Inc. (BZH), the Atlanta-based homebuilder, to buy from hold on May 18. He has a $7 price target on the shares.
In a note, Josh Levin said the shares were down around 24% since May 3, vs. a nearly 14% decline for the company’s peer group over the same period. Although the stock price has dropped sharply, Levin said the thinks the “fundamentals of [the] BZH story” have improved.
The analyst said he thinks a recent recapitalization of the company served to eliminate risk as Beazer now doesn’t face any debt maturities until 2011 and 2013; remove an overhang associated with possible future equity issuance; and allow management to focus on improving Beazer’s operations.
Levin said his analysis suggests that his $7 price target is “conservative”.
Home Depot Inc.: Standard & Poor’s equity analyst Michael Souers lowered a rating on shares of Home Depot Inc. (HD) to sell from hold on May 18. He raised a price target on the shares to $33 from $31.
On May 18, Home Depot Inc., the largest U.S. home-improvement retailer, raised its annual profit forecast after first-quarter profit exceeded analysts’ estimates on demand for seasonal merchandise.
Excluding some items, earnings were 45 cents a share, Atlanta-based Home Depot said in a statement. Analysts projected 40 cents, the average of 24 estimates compiled by Bloomberg. Home Depot raised its forecast for full-year profit to $1.88 a share from $1.79. Analysts estimate $1.87 on average. Sales in stores open at least a year jumped 4.8 percent, as the number of transactions rose by 13 million to 323 million. In March, Home Depot started cutting prices of flowers, fertilizers and patio furniture in the U.S. to help meet its goal of increasing annual sales for the first time in five years.
The retailer said sales may rise about 3.5 percent this year, up from a Feb. 23 projection of about 2.5 percent.
Revenue advanced 4.3 percent to $16.9 billion in the first quarter. Net income increased to $725 million, or 43 cents a share, from $514 million, or 30 cents, a year earlier.
In a posting on the S&P MarketScope service, Souers said that Home Depot’s earnings before one-time items of 45 cents was 8 cents above his estimate. He said he expects further margin gains in fiscal 2011 (ending January), driven by supply chain improvement and expense control; he increased his fiscal 2011 and 2012 operating earnings per share (EPS) estimates to $1.92 and $2.15 from $1.78 and $1.98, respectively.
“[F]ollowing strong recent gains and given our cautious view on the housing market, we find HD overvalued at over 18 times our fiscal 2011 EPS estimate, a significant premium to the S&P 500,” Souers wrote.
May 19
Analog Devices Inc. Cowen & Co. equity analyst John Barton maintained an outperform rating on shares of Analog Devices Inc. (ADI) on May 19.
On May 18, the maker of chips used in cars, consumer electronics and phone networks reported reported per-share profit of 55 cents, more than the 50-cent average estimate of 19 analysts Bloomberg compiled.
In a note, Barton said that ADI’s revenue, gross margin and GAAP earnings per share (EPS) were all above management’s guidance. Barton said company management cited better-than-expected strength primarily in the automotive and industrial markets. He noted that the company said that it has experienced no significant demand changes from Europe; as a result, it provided third-quarter revenue guidance of $695 million to $715 million.
The analyst raised his $2.06 fiscal 2010 (ending October) EPS estimate to $2.23, and his $2.36 estimate for fiscal 2011 to $2.61.
Hormel Foods Corp.: Janney Montgomery Scott analyst Jonathan Feeney maintained a neutral rating and $36 fair value estiimate on shares of Hormel Foods Corp. (HRL) on May 19. Austin, Minnesota-based Hormel is the maker of Spam lunchmeat.
In a note, Feeney said that Hormel’s second-quarter operating EPS of 67 cents “easily beat” his estimate of 59 cents and the Wall Street consensus estimate of 61 cents. He said results at Jennie-O Turkey Store drove the higher than expected results, contributing $13 million, or 6 cents per share. The largest company’s largest segment, Refrigerated Foods, reported results that were about $3 million ahead of his expectations, Feeney said.
The analyst said Hormel’s Grocery products unit missed his forecast on margin pressure and “disappointing volume against very difficult comparisons”.
Feeney raising EPS estimates for fiscal 2010 (ending October) to $2.82 from $2.67 and for fiscal 2011 to $2.83 from $2.77.
“Given the market’s historical tendency to regard HRL as more of a commodity company when commodity trouble inevitably comes, we see a $36 target (13x forward EPS) as fair,” he wrote.
May 20
DIRECTV: UBS Securities equity analyst John Hodulik maintained a buy rating on shares of DIRECTV (DTV), the largest U.S. satellite-TV provider, on May 20. He raised a price target on the shares to $43 from $39.
In a note, Hodulik said he met with DIRECTV management following the company’s release of first-quarter results. He said that while first-quarter U.S. net subscriber additions missed his expectations, revenue, margins and free cash flow “were better” as U.S. average revenue per user improved and net subscriber additions and average revenue per user in Latin America topped his forecasts.
Hodulik said he expect 2010 net subscriber additions of 398,000 and revenue growth of 7.1%, with strength in Latin America more than offsetting weakness in the U.S.
The analyst raised his earnings per share (EPS) estimates for 2010 to $2.44 from $2.24, and for 2011 to $3.40 from $3.11, reflecting stock repurchases of $4 billion in both 2010 and 2011.
PetSmart Inc.: Janney Montgomery Scott equity analyst David Strasser reiterated a neutral rating on shares of PetSmart Inc. (PETM) on May 20. He has a $30 fair value estimate on the shares.
On May 19, the pet-store chain said it had first-quarter earnings of 46 cents a share. The average estimate of analysts surveyed by Bloomberg was for profit of 43 cents a share. PetSmart forecast second-quarter profit excluding some items of 33 cents to 37 cents a share, compared with the analyst estimate of 36 cents.
In a note, Strasser said the company posted a “solid” quarter, with same-store sales up 2.8% and gross margin up 56 basis points, “both better than our model”.
“When we downgraded the stock on March 23 2010, after a 50% move in about 6 months, we had no qualms about PETM’s strategy or its fundamental story,” the analyst wrote. “We simply believe the rate of improvement is captured in [the stock's] current valuation”.
May 21
Dell Inc.: Kaufman Bros. equity analyst Shaw Wu maintained a hold rating on shares of Dell Inc. (DELL) on May 21. He raised a price target on the shares to $14 from $13.
On May 20, Dell, the world’s third-largest personal-computer maker, reported first-quarter gross margins that missed some analysts’ estimates after rising component costs eroded the benefit of a rebound in corporate demand.
Gross margin, excluding some items, was 17.6 percent, Dell said in a statement.
The higher costs of some components, such as memory chips, cut into profitability for the second-straight quarter even as Dell won new buyers for PCs, which account for more than half of revenue. Dell is working to lessen its dependence on PCs by expanding into services, adding smartphones and readying a tablet to take on Apple Inc. (AAPL) and Hewlett-Packard Co. (HPQ).
“The gross margin is somewhat concerning,” said Wu in a May 20 interview on Bloomberg TV.
Dell reported that first-quarter sales rose 21 percent to $14.9 billion. Net income rose 52 percent to $441 million, or 22 cents a share, from $290 million, or 15 cents, a year earlier. Profit, minus some costs, was 30 cents a share. Analysts on average projected profit of 27 cents on sales of $14.2 billion.
In a May 21 note, Wu said that Dell had a “nice quarter,” but the company’s gross margin and quality of earnings were “disappointing”. Wu said that Dell’s gross margin of 17.6% was below expectations of 17.9%; “it looks like DELL got hit harder on rising component costs” than Apple and Hewlett-Packard. Dell “has a much less diverse business model and thus much less room to maneuver,” Wu said.
“In addition, the quality of earnings continues to be poor where there is a 27% difference between GAAP and non-GAAP EPS compared to 39% and 26% over the previous two quarters,” Wu wrote.
The analyst raised fiscal 2011 estimates for revenue to $61.5 billion from $58.5 billion, and for earnings per share (EPS) to $1.20 from $1.15. “[W]e are assuming higher revenue offset by a lower gross margin thus our EPS raise is more muted,” he wrote.
Google Inc.: Standard & Poor’s equity analyst Scott Kessler reiterated a strong buy rating on shares of Google Inc. (GOOG) on May 21.
On May 20, Google introduced software that puts Web content on television to persuade more consumers to use the Internet in their living rooms and view advertisements that generate revenue.
The new tool, Google TV, will work with Intel Corp. (INTC) chips in products by Sony Corp. (SNE) and Logitech International SA, Google said at a conference in San Francisco.
In a posting on the S&P MarketScope service, Kessler noted that Google TV will include the company’s Chrome browser and employ its search technology to enable users to more easily find shows and videos they are looking for.
“While numerous efforts at ‘Internet TV’ have failed over the years, we think there is considerable potential for Google TV, given advanced open platform and broadband technologies,” Kessler wrote.
Experts Talk Market Volatility, Euro Bashing, Deficit
May 20th, 2010 | Posted by stockBusinessweek.com compiles comments from Wall Street economists and strategists on the key economic and market topics of May 20.
Michael Purves, BCG Financial
The VIX [CBOE Volaility Index] is back to the March 2009 levels when the SPX [S&P 500] was reaching its crisis low. This VIX level is also about halfway to its lifetime Lehman crisis spike of 80 (90 intraday). The spike today has coincided with the S&P 500 breaking through its 200-day moving average. In 2004, the SPX crossed back and forth the 200-day moving average before finishing the year up about 10 percent in a “stealth bull market.”
While broad-based asset de-risking is the hallmark of this market right now, it is still too early to call an end to the bull trend. An extended period of higher volatility makes sense when you consider that the global equity markets are still unclear what to make of European developed market sovereign risk. What is clear is that managing volatility will be [a] key theme for managers for the foreseeable future. With a few exceptions, the visibility into the actual broader economic implications is unclear and will not be resolved in the near future.
Natascha Gewaltig, Action Economics
The euro remains under pressure, and it seems euro zone officials are having difficulty finding the right things to say and do, as every announcement or plan turns into another reason to sell the euro. There appears to be little officials can do to help the situation, so staying quiet may be the best option for now. The multitude of voices coming out of the euro zone are only adding to uncertainty, and with the euro still overvalued, politicians should concentrate on pushing ahead with structural reforms and lay the ground for sustainable growth ahead.
Bashing the euro zone and its officials remains the order of the day. There is no shortage of good advice, and admittedly politicians and officials have been playing into the hands of critics and have done little to calm markets, with the multitude of conflicting messages adding to uncertainty over the future of the euro zone.
Michael Feroli, JPMorgan Chase
The U.S. fiscal outlook is bad, but it is not apocalyptic. The very large deficit for the current fiscal year, around 9.4 percent of GDP by our estimate, may lead one to conclude that fiscal sustainability will require policymakers to come up with 9.4 percent of GDP in tax hikes or spending cuts—and such a political will is entirely absent. However, the active amount of austerity to get to a stable debt-to-GDP ratio is much less, for two reasons. First … the relevant measure for sustainability is the primary deficit, or the deficit excluding interest paid on the debt. Second, [more than] 5 percent of the current deficit is directly or indirectly a result of the depressed state of economic activity. As the recovery proceeds, that portion of the deficit should naturally decrease.
The primary deficit, excluding cyclical factors, is a much smaller share of GDP. Indeed, given most forecasters’ outlook for the economy, the primary deficit should fall to 1.6 percent of GDP by 2014. Closing that deficit will require difficult, but not totally unacceptable, choices. To take one example … allowing all the Bush tax cuts to expire as scheduled would alone come quite close to bringing the primary position into balance, hence stabilizing the debt-to-GDP ratio.
Stock Picks: Alkermes, DIRECTV, PetSmart, Walgreen
May 20th, 2010 | Posted by stock5-20-2010 Alkermes Inc.: Jesup & Lamont initiated coverage on shares of Alkermes Inc. (ALKS) with a buy rating and $15 price target on May 20.
In a note, Jesup equity analyst Ching-Yi Lin said “the primary value drivers” for Alkermes, which develops products based on drug delivery technologies, are Risperdal Consta, a treatment for schizophrenia and Bipolar I Disorder for which the company receives royalty payments, and Bydureon, which if approved, would be the first once-a-week therapeutic for treatment of Type II diabetes.
Lin said Alkermes provides proprietary sustained release technology to other biopharmaceutical companies, but also leverages its proprietary technology internally. The company’s model “allows it to generate revenue in proven markets without sharing the total risks and costs of developing a therapeutic,” said the analyst.
Regarding Bydureon, Lin said he believes that its “potency in efficacy coupled with its convenient weekly injection treatment could change the treatment paradigm of Type 2 diabetes mellitus” and help the drug broaden its market penetration.
Lin said he expects FDA approval of Bydureon, developed by Amylin Pharmaceuticals Inc. (AMLN) and Eli Lilly & Co. (LLY) using Alkermes’ drug-delivery technology, on Oct. 22 and a launch for the treatment “early next year”.
DIRECTV: UBS Securities equity analyst John Hodulik maintained a buy rating on shares of DIRECTV (DTV), the largest U.S. satellite-TV provider, on May 20. He raised a price target on the shares to $43 from $39.
In a note, Hodulik said he met with DIRECTV management following the company’s release of first-quarter results. He said that while first-quarter U.S. net subscriber additions missed his expectations, revenue, margins and free cash flow “were better” as U.S. average revenue per user improved and net subscriber additions and average revenue per user in Latin America topped his forecasts.
Hodulik said he expect 2010 net subscriber additions of 398,000 and revenue growth of 7.1%, with strength in Latin America more than offsetting weakness in the U.S.
The analyst raised his earnings per share (EPS) estimates for 2010 to $2.44 from $2.24, and for 2011 to $3.40 from $3.11, reflecting stock repurchases of $4 billion in both 2010 and 2011.
PetSmart Inc.: Janney Montgomery Scott equity analyst David Strasser reiterated a neutral rating on shares of PetSmart Inc. (PETM) on May 20. He has a $30 fair value estimate on the shares.
On May 19, the pet-store chain said it had first-quarter earnings of 46 cents a share. The average estimate of analysts surveyed by Bloomberg was for profit of 43 cents a share. PetSmart forecast second-quarter profit excluding some items of 33 cents to 37 cents a share, compared with the analyst estimate of 36 cents.
In a note, Strasser said the company posted a “solid” quarter, with same-store sales up 2.8% and gross margin up 56 basis points, “both better than our model”.
“When we downgraded the stock on March 23 2010, after a 50% move in about 6 months, we had no qualms about PETM’s strategy or its fundamental story,” the analyst wrote. “We simply believe the rate of improvement is captured in [the stock's] current valuation”.
Walgreen Co.: Credit Suisse equity analyst Edward Kelly lowered a rating on shares of Walgreen Co. (WAG) to neutral from outperform on May 20. He also lowered a price target on the shares to $36 from $42.
In a note, Kelly said the drugstore chain’s plan to slow growth, cut costs, and enhance store productivity “has yielded some positive results”, but he has been “disappointed with the repositioning so far”. Kelly said his biggest concern is a lack of progress in the company’s Consumer Centric Retailing initiative, as Walgreen’s remerchandising effort “has had execution issues”.
Other issues cited by the analyst include a slowing pace of cost savings, “questionable” capital allocation, and increased execution risk. He said he sees business trends remaining “sluggish” for the next few quarters.
Kelly cut his EPS estimates for fiscal 2010 (ending August) to $2.13 from $2.22, and for fiscal 2011 to $2.54 from $2.70.
Stock Picks: Analog Devices, Google, Hormel
May 19th, 2010 | Posted by stock5-19-2010 Analog Devices Inc. Cowen & Co. equity analyst John Barton maintained an outperform rating on shares of Analog Devices Inc. (ADI) on May 19.
On May 18, the maker of chips used in cars, consumer electronics and phone networks reported reported per-share profit of 55 cents, more than the 50-cent average estimate of 19 analysts Bloomberg compiled.
In a note, Barton said that ADI’s revenue, gross margin and GAAP earnings per share (EPS) were all above management’s guidance. Barton said company management cited better-than-expected strength primarily in the automotive and industrial markets. He noted that the company said that it has experienced no significant demand changes from Europe; as a result, it provided third-quarter revenue guidance of $695 million to $715 million.
The analyst raised his $2.06 fiscal 2010 (ending October) EPS estimate to $2.23, and his $2.36 estimate for fiscal 2011 to $2.61.
Google Inc.: Standard & Poor’s equity analyst Scott Kessler reiterated a strong buy rating on shares of Google Inc. (GOOG), owner of the most-used Web search engine, on May 19.
In a posting on the S&P MarketScope service, Kessler said that at the company’s Google I/O conference for developers on May 19, he expected “some significant associated news”. Kessler said he anticipated an announcement about the latest version of Android, “perhaps enabling devices to serve as wireless broadband modems”. Kessler noted that Android recently became the No. 2 smartphone operating system in the U.S., per data from NPD, and the No. 4 global platform according to Gartner.
“We also foresee an announcement related to GOOG’s efforts to more easily make Internet content (including YouTube videos) available on televisions, in conjunction with some well-known partners,” Kessler said.
Hormel Foods Corp.: Janney Montgomery Scott analyst Jonathan Feeney maintained a neutral rating and $36 fair value estiimate on shares of Hormel Foods Corp. (HRL) on May 19. Austin, Minnesota-based Hormel is the maker of Spam lunchmeat.
In a note, Feeney said that Hormel’s second-quarter operating EPS of 67 cents “easily beat” his estimate of 59 cents and the Wall Street consensus estimate of 61 cents. He said results at Jennie-O Turkey Store drove the higher than expected results, contributing $13 million, or 6 cents per share. The largest company’s largest segment, Refrigerated Foods, reported results that were about $3 million ahead of his expectations, Feeney said.
The analyst said Hormel’s Grocery products unit missed his forecast on margin pressure and “disappointing volume against very difficult comparisons”.
Feeney raising EPS estimates for fiscal 2010 (ending October) to $2.82 from $2.67 and for fiscal 2011 to $2.83 from $2.77.
“Given the market’s historical tendency to regard HRL as more of a commodity company when commodity trouble inevitably comes, we see a $36 target (13x forward EPS) as fair,” he wrote.
Stock Picks: Atmel, BlackRock, JDS Uniphase, Symantec
May 6th, 2010 | Posted by stock5-6-2010 Atmel Corp.: Rodman & Renshaw equity analyst Ashok Kumar maintained an outperform rating on shares of Atmel Corp. (ATML) on May 6, with a fair value of $8 on the stock.
In a note, Kumar said that the maker of chips for household appliances posted March-quarter revenues of $349 million on May 4, ahead of the company’s earlier guidance range of $330 million to $344 million and the Wall Street consensus estimates of $340 million. Kumar said Atmel’s earnings per share (EPS) of 4 cents was also above the consensus estimate of 1 cent on higher revenues and interest income, and lower taxes.
Kumar said the company’s June-quarter revenue guidance of $366 million to $380 million was well ahead of Wall Street estimates of $350 million, with gross margins estimated between 39% to 41%. He said Atmel “is well on its way” to its targets of 45% gross margin and 15% operating margin.
“Handset designs wins at HTC, Motorola, Nokia, and Samsung should contribute to the financial out-performance for the remainder of the year,” Kumar said.
BlackRock Inc.: UBS Securities initated coverage of BlackRock Inc. (BLK) with a buy rating and $210 price target on May 6.
UBS equity analyst Glenn Schorr said in a note that he thinks BlackRock, the world’s largest asset manager, is “very well positioned to benefit from the secular growth trends of ‘active to passive’ [fund management], the push for more tailored solutions, and continued positive fixed income flows”.
“BlackRock’s respected brand name, breadth of product offerings, and distribution capabilities should enable the firm to capitalize on the continued development of capital markets around the globe,” he wrote.
Schorr said he thinks the stock is “attractive” given BlackRock’s broad asset mix, its market leadership in passively managed index products, and its “solid” long-term performance.
The analyst set EPS estimates of $10.38 for 2010, $12.35 for 2011, and $14.50 for 2012.
JDS Uniphase Corp.: RBC Capital Markets equity analyst Mark Sue kept an outperform rating on shares of JDS Uniphase Corp. (JDSU) on May 6, with a $16 price target on the stock.
On May 5, JDS Uniphase, the maker of fiber-optic equipment, posted third quarter EPS of 10 cents, above the 9-cent average estimate of analysts in a Bloomberg survey. Sales of $332.3 million were 2.5 percent below the average estimate of $340.9 million.
Sue said in a note that JDS Uniphase’s revenue missed estimates, “while its costs are rising and there is pricing pressure in its Test & Measurement segment”. He noted that the lower-than-expected revenues were due to supply constraints, as “bookings are at record levels of $400 million”. He said that near-term cost increases are related to acquisitions, while recent pricing action “may be primarily driven by one competitor”.
The analyst said the company’s guidance for June-quarter revenue of $385 million to $410 million was above the consensus view of about $370 million, as adjusted for its acquisition of Agilent Technologies Inc.’s network solutions test unit. He raised calendar-year EPS estimates for 2011 to 70 cents from 60 cents and for 2012 to 85 cents from 80 cents.
Symantec Corp.: Standard & Poor’s equity analyst Jim Yin maintained a hold rating and $18 price target on shares of Symantec Corp. (SYMC) on May 6.
On May 5, Symantec, the biggest maker of security software, reported a fourth-quarter profit after customers added programs to protect and store information.
Profit was $184 million, or 23 cents a share, compared with a loss of $264 million, or 32 cents, a year earlier, the company said in a statement. Excluding some costs, profit was 40 cents a share, topping the 37-cent average estimate of analysts in a Bloomberg survey.
In a posting on the S&P MarketScope service, Yin said that Symantec’s fourth-quarter EPS of 23 cents was 4 cents better than his estimate, while revenues, which rose 4.3% to $1.53 billion, were $36 million above his forecast. Symantec cited strength in its consumer business and stability in its enterprise business, Yin said.
“Although we think the company is executing well, we believe IT spending for enterprise software will remain sluggish,” Yin wrote. He expects fiscal 2011 (ending March) revenues to grow “in the low-single digit” percentage range due to unfavorable foreign currency exchange effects.
The analyst raised a fiscal 2011 EPS estimate by 3 cents to 92 cents on expectations for “slightly higher” revenues.
Stock Picks: Emerson, MasterCard, Myriad, Time Warner
May 5th, 2010 | Posted by stock5-5-2010 Emerson Electric Co.: UBS Securities equity analyst Jason Feldman maintained a neutral rating on shares of Emerson Electric Co. (EMR) on May 5. He raised a price target on the shares to $53 from $49.
On May 4, shares of Emerson, the electrical- products maker seeking to acquire Chloride Group Plc, fell the most in more than a year after second-quarter sales trailed estimates and data showed Chinese manufacturing was slowing.
Revenue in the three months ended March 31 was $5.14 billion, compared with an average estimate of $5.22 billion from 12 analysts surveyed by Bloomberg. Profit excluding some items was 54 cents a share, less than the 55-cent average estimate of 15 analysts.
In a note, Feldman called Emerson’s second-quarter margin performance “solid”, as operating margins of 15.0% improved 90 basis points over a year earlier and 20 basis points over the preceding quarter. He noted that sales from existing businesses increased by 19% at the Climate Tech unit and 2% at Appliance & Tools, but declined by 6% at Network Power, 13% at Process, and 16% at Industrial Automation.
Feldman said the company noted that order trends excluding currency effects were positive in all segments. “We believe strong order trends bode well for revenue growth in the back half [of fiscal 2010], and particularly in fiscal 2011,” he wrote.
The analyst said Emerson raised its earnings per share (EPS) guidance for fiscal 2010 (ending September) to $2.40 to $2.55 from $2.20 to $2.40, compared with the Wall Street consensus expectation of $2.47. The guidance reflects some caution on the part of management regarding the European and U.S. economies, he said.
Feldman raised his EPS estimates for fiscal 2010 to $2.50 from $2.40 and for fiscal 2011 to $3.20 from $3.00.
MasterCard Inc.: Keefe, Bruyette & Woods equity analyst Sanjay Sakhrani reiterated an outperform rating and $313 price target on shares of MasterCard Inc. (MA) on May 5.
MasterCard, the world’s second- biggest electronic payments network, posted a first-quarter profit that beat most analysts’ estimates on May 4 as consumer spending rebounded and expenses were held in check.
Net income rose 24% to $455 million, or $3.46 per share, from $367.3 million, or $2.80, in the same period a year earlier, the company said in a statement. The average estimate of analysts surveyed by Bloomberg was $3.15. Revenue advanced 13% to $1.3 billion.
In a note, Sakhrani said that MasterCard’s reported first-quarter EPS of $3.46 compared with our estimate of $3.25 and the Wall Street consensus estimate of $3.14. He said MasterCard reported “solid” results driven by stronger revenue growth along with lower expenses, primarily in marketing.
While the company “will likely face headwinds as the year progresses” from more difficult comparisons in later 2009, a stronger U.S. dollar, the impact from the loss of a few customers, higher rebates and incentives, and higher levels of marketing expenses relative to the first quarter, Sakhrani said he believes MasterCard can offset the impacts via strong processing volume growth, selective repricing initiatives, and disciplined expense management.
The analyst increased a 2010 EPS estimate to $13.55 from $13.40 to reflect “generally favorable volume trends”.
Myriad Genetics Inc.: Morgan Joseph equity analyst Shiv Kapoor maintained a hold rating on shares of Myriad Genetics Inc. (MYGN) on May 5.
Shares of Myriad lost 27% to $17.61 on May 5. The maker of a test for detecting inherited breast cancer forecast 2010 profit of $1.35 a share at most on May 4, trailing the average analyst estimate of $1.49.
In a note, Kapoor said that Myriad’s reported EPS of 33 compared to his estimate of 41 cents and the Wall Street consensus projection of 39 cents. He said revenues of $90.8 million were below the Wall Street consensus estimate of $97.8 million and his estimate of $97.8 million.
“Quarter-over-quarter growth of 5% is substantially lower than the over 40% sales growth recorded during the past 3 fiscal years,” he wrote.
Kapoor said the company blamed poor macroeconomic conditions and low frequency of physician visits for the weak results. “To us, this is a confirmation that the company’s marketing efforts and an improving economic environment do not appear to be benefitting Myriad,” he said. “We continue to believe, based on the previous recession, that it may take 2-3 years of economic growth for Myriad’s business to regain its growth.”
Time Warner Inc.: Standard & Poor’s equity analyst Tuna Amobi maintained a buy rating on shares of Time Warner Inc. (TWX) on May 5.
Time Warner, owner of the Warner Bros. film studio and TBS cable-television channel, reported first-quarter profit that beat analysts’ estimates on May 5 as movie sales rose and advertising rebounded.
Excluding some items, earnings rose to 61 cents a share, the company said in a statement. Analysts projected 48 cents, the average of 17 estimates compiled by Bloomberg.
In a posting on the S&P MarketScope service, Amobi said that Time Warner’s first-quarter EPS excluding items beat his estimate by 12 cents, “unsurprisingly fueled by cable networks’ (HBO, TNT, TBS) subscriptions and ads”. He said the increase in cable subscriptions “affirm[s] the economic rebound”.
Amobi also noted positive results from the company’s film studio, including the films Sherlock Holmes, The Blind Side, and Valentine’s Day, with its publishing unit “also swinging to modest profits” on restructuring measures.
The analyst said Time Warner affirmed its expectation for 2010 EPS growth at a percentage rate in the mid-teens, which he thinks is “well achievable, if not conservative”.
Stock Picks: Ann Taylor, Arrow, Electronic Arts, Sirius XM
May 4th, 2010 | Posted by stock5-4-2010 Ann Taylor Stores Corp.: Jesup and Lamont equity analyst Barbara Wyckoff raised a rating on shares of Ann Taylor Stores Corp. (ANN) to buy from hold on May 4, with a $28 price target on the shares.
Shares of the women’s clothing retailer rose as much as 10% in New York trading May 4 after first-quarter sales topped its previous forecast, based on preliminary results. Sales were about $475 million, compared with a prediction for $445 million, Ann Taylor said in a statement.
In a note, Wyckoff said that the upgrade followed the company’s announcement that of higher fiscal 2010 first-quarter sales and margin vs. management’s original guidance. She said her revised earnings per share (EPS) estimate of 34 cents for the quarter is based on the company’s guidance issued on May 4. The company’s first-quarter comparable-store sales were up 11% vs. Wyckoff’s estimate of 10%; e-commerce sales were up 50%. Wyckoff noted that gross margin is projected to be up 350 basis points to 59% of sales from 55.5%.
“Clearly, ANN’s new product mix and improved sourcing is helping drive regular price sales against easy last-year comparisons,” the analyst wrote.
“[T]oday’s announcement is a game changer and therefore we are upgrading ANN,” Wyckoff said.
Arrow Electronics Inc.: UBS Securities analyst Amitabh Passi Maintained a buy rating on shares of Arrow Electronics Inc. (ARW) on May 4. He raised a price target on the shares to $35 from $33.
On May 3, the distributor of electronic components predicted second-quarter profit excluding some items of at least 78 cents a share, topping the average analyst estimate of 66 cents in a Bloomberg survey.
Passi said in a note that Arrow reported revenues of $4.235 billion and EPS of 76 cents, ahead of the respective Wall Street consensus estimates of $4.077 billion and 60 cents. He said the company’s June-quarter guidance of $4.3 billion to $4.6 billion in revenues and 78 cents to 86 cents EPS was also ahead of the consensus forecasts of $4.235 billion and 66 cents, primarily on strength in Arrow’s components segment.
Passi raised estimates for calendar 2010 to revenues of $17.7 billion from $16.8 billion and for EPS to $3.22 from $2.43; for calendar 2011, he hiked his estimates to revenues of $18.6 billion from $17.5 billion and EPS of $3.50 from $2.89.
Electronic Arts Inc.: Kaufman Bros. equity analyst Todd Mitchell reiterated a buy rating and $23 price target on shares of video-game maker Electronic Arts Inc. (ERTS) on May 4.
Mitchell said in a note that Electronic Arts will report fiscal 2010 fourth-quarter results after the close of trading May 11. He said that on Apr. 16 he raised a fiscal 2011 EPS estimate and price target for the company, due to evidence of better-than-expected sales of Battlefield: Bad Company 2, Mass Effect 2, and Dante’s Inferno during the quarter, and “because we believe better retail sales in 2Q10 should support stronger valuations for the [video-game] group as a whole”.
The analyst increased his projections for fourth-quarter revenues to $843 million from $800 million, and for EPS to 7 cents from 5 cents. He said his estimate implies fiscal 2010 revenue of $4.15 billion and non-GAAP EPS of 45 cents. He forecasts fiscal 2011 revenues of $3.9 billion and non-GAAP EPS of 70 cents.
“After a three-year hiatus, we expect video game industry earnings to return to a normalized basis in 2010, through a combination of improved profitability in core packaged goods businesses and a shift in revenue mix to a greater percentage of higher-growth, higher-margin digital revenue,” the analyst wrote. “The turnaround at EA in fiscal 2011 will primarily be because of the former.”
Sirius XM Radio Inc.: Standard & Poor’s equity analyst Tuna Amobi maintained a hold opinion and $1.50 price target on shares of Sirius XM Radio Inc. (SIRI) on May 4.
Amobi said in a posting on the S&P MarketScope service that the company’s first-quarter EPS of 1 cent, vs. a 7-cent loss per share one year earlier, was 1 cent above his estimate.
“We see continued auto OEM channel momentum, vs. persistent retail after-market woes, as SIRI now looks to [the] used car market,” Amobi wrote. He said Sirius XM affirmed over 500,000 net subscriber additions in 2010, 20% adjusted EBITDA growth, and positive free cash flow.
“With delisting (and reverse split) clouds dissipating, and [the prospect of] of reupping Howard Stern (perhaps on different terms)”, the analyst said he was maintaining his $1.50 price target on Sirius XM.
Stock Picks: Comcast, First Solar, Robert Half, US Airways
April 28th, 2010 | Posted by stock4-28-2010 Comcast Corp.: Standard & Poor’s equity analyst Tuna Amobi kept a hold rating on shares of Comcast Corp. (CMCSA) on Apr. 28.
Comcast, the largest U.S. cable company, reported first-quarter profit that beat analysts’ estimates on Apr. 28 after luring new customers with faster Internet speeds and cable programs that can be viewed online.
Comcast said that earnings amounted to 31 cents a share, compared with the 30-cent average of estimates compiled by Bloomberg. The Philadelphia-based company added 1.02 million net new customers.
Net income climbed 12% to $866 million from $772 million a year earlier, Comcast said in a statement. Advertising sales jumped 24% last quarter to $360 million, compared with a 15% slump last year. Total sales rose 3.8% to $9.2 billion, compared with the $9.15 billion average of analysts’ estimates.
Comcast’s first-quarter operating cash flow rose 3.5% to $3.57 billion and free cash flow surged 38% to $1.89 billion. In December, the company announced plans to take a 51% stake in General Electric Co.’s NBC Universal TV and film business in a $28 billion joint venture. The companies expect the merger to close within the year after the deal undergoes regulatory scrutiny.
In a posting on the S&P MarketScope service, Amobi said the company’s first-quarter earnings per share (EPS) of 31 cents were 3 cents above his estimate. “While relatively modest first-quarter revenue and operating cash flow gains, both below 4%, have evidently retreated below recent trend lines, we note declining capital intensity drove solidly above-trend 38% free cash flow growth,” the analyst wrote.
Amobi also noted that net unit growth of over 1 million units, on net additions of data, digital and voice service, “also seemed to stabilize somewhat”.
First Solar Inc.: Kaufman Bros. equity analyst Jeffrey Bencik maintained a buy rating and $140 price target on shares of First Solar Inc. (FSLR) on Apr. 28.
First Solar, the world’s largest maker of thin-film solar power modules, said on Apr. 28 that it plans to buy project developer NextLight Renewable Power LLC to boost sales of its panels to U.S. utilities. First Solar agreed to pay $285 million in cash for the closely held developer, which has contracts to build 570 megawatts of solar-power arrays in the Southwest, the Tempe, Arizona-based company said in a statement. The companies expect to complete the transaction in the third quarter.
In a note, Bencik said the acquisition “increases visibility” into 2011 forecasts for First Solar. He noted that the acquisition of NextLight secures an additional 1,100 megawatts of backlog for the company. “At over 2,200 MW in backlog, we believe this represents the most in the industry, in fact, we believe it is likely 50% more than the next closest competitor,” the analyst said.
Bencik said he believes there is “significant upside” to First Solar’s earnings in 2010 and 2011. He forecasts EPS for 2010 of $6.48 and for 2011 of $8.76, above the current consensus estimates of $6.15 and $7.38, respectively.
Robert Half International Inc.: R.W. Baird equity analyst Mark Marcon lowered a rating on shares of Robert Half International Inc. (RHI) to neutral from outperform on Apr. 28.
The supplier of temporary workers posted a first-quarter profit excluding some items of 6 cents a share on Apr. 27, missing the average analyst estimate by 15%.
In a note, Marcon said staffing demand is improving and the company’s execution remains “solid”. He said that demand for finance and accounting workers is increasing more slowly than some other areas of staffing services, prompting him to cut his EPS estimates for 2010 to 47 cents from 55 cents, and for 2011 to 97 cents from $1.00.
Marcon said he continues to view Robert Half as “a high quality provider”.
US Airways Group Inc.: Jesup & Lamont equity analyst Helane Becker raised a rating on shares of US Airways Group Inc. (LCC) to buy from hold on Apr. 28. She set a $13 price target on the shares.
On Apr. 27, US Airways, the smallest of the U.S. full-fare carriers, said its first-quarter loss narrowed to $45 million as it flew more passengers on international routes. The net loss shrank to 28 cents a share from $103 million, or 90 cents, a year earlier, the Tempe, Arizona-based company said. Sales increased 7.9% to $2.65 billion.
An increase in travel outside the U.S., where carriers don’t compete with low-fare airlines, helped overcome higher fuel prices during the quarter. Traffic in miles flown by paying passengers rose 12% on routes across the Atlantic and 9.3% to Latin America, the carrier has said. US Airways’ total slipped 1.9% from a year earlier.
Excluding what the company considers one-time costs and gains, the loss was $89 million, or 55 cents a share. On that basis, US Airways was expected to report a loss of 71 cents, the average from 7 analyst estimates compiled by Bloomberg.
Becker said in a note that the company’s first-quarter loss excluding one-time items of 55 cents compared to her 74 cents loss estimate, and the Wall Street consensus view of a 71-cent loss. She raised her 2010 EPS estimate to $1.29 from 70 cents, reflecting the fact that the company’s fare pricing in the current quarter is “significantly superior” to her original estimate.
The analyst noted that US Airways ended the first quarter with $2.0 billion in cash on its balance sheet, of which $1.6 billion was unrestricted. As the airline becomes more profitable, Becker believes credit card holdbacks will be reduced so that more cash will be classified as unrestricted.
Stock Picks: Caterpillar, Honeywell, Idexx, Wilmington
April 26th, 2010 | Posted by stock4-26-2010 Caterpillar Inc.: Standard & Poor’s equity analyst Michael Jaffe maintained a buy opinion on shares of Caterpillar Inc. (CAT) on Apr. 26. He also raised a price target on the shares to $88 from $72.
Caterpillar Inc., the world’s largest maker of construction equipment, posted its first earnings increase in seven quarters on Apr. 26, exceeding analysts’ estimates, as the global economy began to improve.
Net income was $233 million, or 36 cents a share, after a loss of $112 million, or 19 cents, a year earlier. The profit was its first year-over-year increase since the second quarter of 2008, before the U.S. financial crisis. First-quarter profit excluding costs for a new health-care law was 50 cents a share, beating the average estimate of 39 cents a share in a Bloomberg survey of 21 analysts. Sales fell to $8.24 billion, an 11 percent decline from the year-earlier quarter, before the full brunt of the financial crisis and global recession had shrunk revenue.
Full-year sales, profit and economic growth will be higher than executives previously predicted, Caterpillar said. Full-year profit will be about $2.50 to $3.25 a share, compared with a January forecast of about $2.50, the company said. Analysts, on average, estimated $2.66 a share. Caterpillar said sales in 2010 will rise to $38 billion to $42 billion, exceeding analysts’ average estimate of $36.6 billion.
In a posting on the S&P MarketScope service, Jaffe said that Caterpillar’s adjusted earnings per share (EPS) of 50 cents was in line with his expectation. While revenues fell 11%, profits were aided by favorable product pricing and well controlled manufacturing costs, Jaffe said.
“Prospects continue to brighten, in our view, on robust business growth in Asia/Pacific and Latin America, a positive outlook in energy and mining markets served by CAT, and very low inventories in the U.S. and Europe,” Jaffe wrote.
The analyst raised his EPS estimates for 2010 to $3.20 from $3.00 and for 2011 to $4.10 from $3.65.
Honeywell International Inc.: UBS Securities equity analyst Jason Feldman maintained a neutral rating on shares of Honeywell International Inc. (HON) on Apr. 26. He raised a price target on the shares to $47 from $44.
On Apr. 23, Honeywell, the maker of car turbochargers and gas detectors, reported that first-quarter net income fell to $386 million, or 50 cents a share, from $397 million, or 54 cents, a year earlier. The average estimate in a Bloomberg survey of 10 analysts was 47 cents a share. Sales climbed 2.7% to $7.78 billion.
Honeywell forecast second-quarter profit of 53 cents to 57 cents a share on revenue of $7.8 billion to $8.1 billion. The average estimate of 10 analysts was for net income of 54 cents a share. The company said profit this year will be higher than it previously predicted because of rising demand from automakers. Profit will be $2.30 to $2.45 a share, compared with a previous estimate of $2.20 to $2.40. The average estimate of 10 analysts in a Bloomberg survey was for net income of $2.40.
Feldman said in a note that “[w]e thought first-quarter results were fairly uneventful and roughly in-line with expectations”, noting that all the company’s business segments delivered revenue at the high end of Honeywell’s first-quarter guidance range. Feldman said segment margins of 13.3% were an improvement from 11.6% last year, although they were down from 15.3% last quarter.
Management noted that conditions were “definitely getting better”, Feldman said, with greater stability in key end markets, and that orders grew across all segments. He said the company commented that it is seeing “very attractive” M&A opportunities.
“We believe there may be upside to guidance in the second half of 2010, particularly from the potential for acceleration of stimulus spending and higher commercial aftermarket sales,” the analyst wrote.
Idexx Laboratories Inc.: Kaufman Bros. equity analyst Dawn Brock reiterated a buy rating and $70 price target on shares of Idexx Laboratories Inc. (IDXX) on Apr. 26.
On Apr. 23, the maker of diagnostics tests for animals increased its full-year projection after first-quarter earnings topped analysts’ estimates.
In a note, Brock said Idexx’s first-quarter EPS of 55 cents was 6 cents ahead of the Wall Street consensus estimate and her estimate of 49 cents, on strong revenue growth and good cost management across all operating divisions, particularly in the company’s companion animal group (CAG).
“The announcement of a next-generation hematology analyzer product launch (expected to commence shipping in the third quarter of 2010) in the release is essentially what we were waiting for to provide additional energy to the 2010 second-half growth story,” Brock said, adding that Idexx management raised its EPS guidance range for 2010 to $2.23-$2.28 from $2.20-$2.25.
“We believe IDXX continues to execute an impressive business plan with scheduled product and test introductions that provide a layering effect for continued revenue growth and margin expansion,” Brock wrote.
Wilmington Trust Corp.: Janney Montgomery Scott equity analyst Stephen Moss reiterated a neutral rating on shares of Wilmington Trust Corp. (WL) on Apr. 26. He raised a fair value estimate on the shares to $14 from $13.
Moss said in a note that Wilmington Trust, Delaware’s largest bank, reported a first quarter loss of 44 cents on Apr. 23, below his loss estimate of 14 cents. He noted that results included charges for loans classified as other than temporarily impaired, or OTTI, of 15 cents per share.
“Wilmington Trust’s first quarter results were challenging because of continued growth in non-performing assets, and watchlist and substandard loans,” Moss wrote. While the company successfully raised common equity during the quarter, repayment of TARP funds is “unlikely to happen for an extended period”, said the analyst, until problem loan balances are reduced.
“We continue to like the company’s fee-based businesses and dominant Delaware franchise, but remain cautious due to the company’s credit exposure,” he wrote.
Moss widened his 2010 loss per share estimate to 90 cents, from 50 cents, and established a 2011 loss per share estimate of 10 cents.
Picks of the Week: Apple, eBay, Goldman, IBM, Netflix
April 23rd, 2010 | Posted by stock4-23-2010 Notable Wall Street analyst opinions on stocks in the news for the week of Apr. 19-Apr. 23:
Apr. 19
Citigroup Inc.: Standard & Poor’s equity analyst Matthew Albrecht kept a buy recommendation and $6 price target on shares of Citigroup Inc. (C) on Apr. 19.
Citigroup said on Apr. 19 that its first-quarter profit more than doubled as the global economic rebound trimmed costs for bad loans, trading revenue surpassed analysts’ estimates and the value of subprime mortgage bonds increased.
First-quarter net income of $4.43 billion followed a loss of $7.58 billion in the fourth quarter and a profit of $1.59 billion in the first three months of 2009, New York-based Citigroup said in a statement. Adjusted per-share earnings were 14 cents. Analysts in a Bloomberg survey estimated the company would break even.
In a posting on the S&P MarketScope service, Albrecht said Citigroup’s earnings per share (EPS) of 15 cents, vs. a year-earlier loss per share of 18 cents, were well above his estimate of a one-cent loss per share. Albrecht noted that Citigroup’s revenues were aided by an improved net interest margin, securities write-ups and trading gains, while costs and the effective tax rate were below his estimate.
“Delinquencies have stabilized or improved across most categories, suggesting further reductions in loss provisioning,” the analyst wrote.
Albrecht raised EPS estimates for 2010 to 49 cents from breakeven results, and for 2011 to 50 cents from 17 cents.
Palm Inc.: Morgan Keegan equity analyst Tavis McCourt downgraded a rating on shares of Palm Inc. (PALM) to underperform from market perform on Apr. 19.
In a note, McCourt said that the downgrade came after the maker of the Treo filed a Form 8-K with the SEC on Apr. 16 saying that Michael Abbott, its senior vice-resident of software and services, has resigned effective Apr. 23. McCourt noted that Palm also said that five other executives, including chief financial officer Doug Jeffries, received a total of nearly 1.2 million restricted shares; and that two officers, including Jeffries, got $250,000 retention bonuses.
“[T]hese are not actions that inspire confidence about PALM’s ability or willingness to sell out at a premium valuation” in the near term, McCourt said.
Apr. 20
Goldman Sachs Group Inc.: Standard & Poor’s equity analyst Matthew Albrecht kept a hold recommendation and $180 price target on shares of Goldman Sachs Group Inc. (GS) on Apr. 20.
Goldman, facing a fraud lawsuit from U.S. regulators, reported first-quarter earnings that surpassed analysts’ estimates on Apr. 20 on record fixed-income trading revenue.
Net income at the most profitable investment bank in Wall Street history almost doubled to $3.46 billion, or $5.59 a share, from $1.81 billion, or $3.39, a year earlier, the company said in a statement. The average estimate of 23 analysts surveyed by Bloomberg was for $4.14 per share. Predictions ranged from $3.33 to $5.97.
In a posting on the S&P MarketScope service, Albrecht said Goldman’s first-quarter earnings per share of $5.59 beat his $4.34 estimate. He noted that investment banking, asset management and securities fees declined sequentially, but “strong” trading, particularly in the fixed income, currency, and commodity (FICC) business, boosted revenues.
“Compensation accrued at just 43% of net revenues, well below our estimate, and we now expect similar accrual levels for the rest of 2010,” Albrecht wrote.
The analyst raised a 2010 earnings per share (EPS) estimate for 2010 by 51 cents to $20.79, and established a 2011 estimate at $22.10. He said his $180 target price was 1.4 times projected book value, below Goldman’s historical valuation “as litigation and regulatory risks remain”.
International Business Machines Corp.: UBS Securities equity analyst Maynard Um maintained a neutral rating on shares of International Business Machines Corp. (IBM) on Apr. 20. He raised a price target on the shares to $142 from $138.
IBM, the world’s largest computer-services provider, reported on Apr. 20 that total sales in the first quarter rose 5.3% to $22.9 billion. Adjusting for foreign-exchange fluctuations, or FX, revenue was little changed from a year earlier, IBM said. First-quarter net income rose to $2.6 billion, or $1.97 a share, from $2.3 billion, or $1.70, a year earlier, IBM said.
IBM also said signings of first-quarter service contracts fell, signaling that spending on larger technology projects may not pick up until the second half of the year. Services signings, which account for more than half of total revenue, dropped about 2% to $12.3 billion, the company said. New contracts for application-management, which help clients maintain and develop software, slid 23%.
The company said profit this year will be $11.20 a share, up from a previous forecast of at least $11 a share. Analysts predicted $11.13 on average, based on estimates compiled by Bloomberg.
In a note, Um said he was “still looking for signs of sustainable revenue reacceleration” at IBM. “We continue to believe improved revenue growth is key to multiple expansion as material margin upside by segment may be challenging,” he wrote.
Given expectations for “modestly” better margin expansion, Um raised estimates for 2010 to $99.4 billion in revenues from $99.0 billion, and EPS to $11.23 from $11.06; for 2011, he hiked estimates for revenues to $102.7 billion from $102.3 billion, and EPS to $11.86 from $11.73.
Apr. 21
Apple Inc.: Citgroup equity analyst Richard Gardner kept a buy rating on shares of Apple Inc. (AAPL) on Apr. 21. He raised a price target on the shares to $320 from $300.
On Apr. 20, Apple reported a 90% surge in second-quarter profit on demand for the iPhone and Macintosh personal computer. Net income in the second quarter, which ended March 27, rose to $3.07 billion, or $3.33 a share, from $1.62 billion, or $1.79, a year earlier. Sales gained 49 percent to $13.5 billion. That surpassed the expectations of analysts, who predicted profit of $2.46 a share on sales of $12 billion.
Sales this quarter will be as high as $13.4 billion, Apple said, topping the $13 billion anticipated by analysts. Apple said iPhone shipments doubled to 8.75 million. The company also sold 2.94 million Macs and 10.9 million iPods.
Gardner said in a note that he is “significantly” raising his earnings per share (EPS) EPS estimates on the company’s “stunning” second-quarter results. He said the company’s $3.33 EPS and $13.5 billion in revenue topped even the most bullish forecasts, driven by record iPhone sales.
The analyst said the fact that Apple delivered such significant upside before this year’s product introductions and refreshes makes him “all the more confident” in his positive stance on the stock through year-end.
Gardner raised EPS estimates for fiscal 2010 (ending September) to $13.17 from $11.54, and for fiscal 2011 to $15.50 from $13.67.
Harley-Davidson Inc.: UBS Securities equity analyst Robin Farley kept a neutral rating on shares of Harley-Davidson Inc. (HOG) on Apr. 21. She raised a price target on the shares to $35.50 from $25.50.
Harley-Davidson Inc., the biggest U.S. motorcycle maker, announced first-quarter profit that beat analysts’ estimates on Apr. 20. Income from continuing operations was $68.7 million, or 29 cents a share, the Milwaukee-based company said. Analysts expected earnings of 24 cents a share, based on 8 estimates compiled by Bloomberg.
In a note, Farley said that Harley-Davidson’s first-quarter EPS from continuing operations of 29 cents compared with her estimate of 25 cents, though her estimate excluded around 10 cents of restructuring charges.
“However, we believe manufacturing mix pulled $0.12 of that upside from future quarters,” she wrote. She said that production of the company’s Sportster model was only 15.3% of the first-quarter product mix, vs. 22.5% one year earlier, because Sportster production was shut down during the 2009 fourth quarter, allowing dealers to clear out older model-year inventory. Farley said the Touring model was 42.1% of the first-quarter production mix, vs. 34.8% in the prior year.
Historically, Sportsters account for 20% to 24% of the annual product mix while Touring is closer to 26% to 35%, Farley said, noting that Sportster is the company’s lowest-margin model.
Apr. 22
EBay Inc.: Kaufman Bros. equity analyst Aaron Kessler maintained a hold rating and $31 price target on shares of EBay Inc. (EBAY) on Apr. 22.
EBay had its biggest drop in more than a year in Nasdaq trading on Apr. 22 after its profit forecast missed estimates.
On Apr. 21, the online auction company reported that first-quarter net income rose 11% to $397.7 million, or 30 cents a share, from $357.1 million, or 28 cents, a year earlier. Excluding some costs, profit was 42 cents a share. Analysts had projected 41 cents on average. Second-quarter profit will be 37 cents to 39 cents a share, excluding one-time items, the company said. Analysts in a Bloomberg survey had estimated 40 cents on average.
Revenue in the second quarter will be $2.15 billion to $2.2 billion, EBay said. Analysts had anticipated $2.21 billion.
Kessler said in a note that eBay reported an “in line” first quarter with strength in its Payments unit but softer-than-expected gross merchandise volume (GMV) at its Marketplace unit. He said eBay’s total revenues were 1.6% above his estimate while earnings before interest, taxes, depreciation and amortization, or EBITDA, was 4.6% above his projection and pro forma EPS of 42 cents was slightly above his view of 40 cents.
Kessler said eBay remains optimistic that its fee changes in the U.S. will drive stronger U.S. growth in 2010, although management indicated that it is too early to tell.
“[W]e would like to see signs of stronger Marketplace growth,” Kessler said.
Netflix Inc.: Janney Montgomery Scott equity analyst Tony Wible reiterated a sell recommendation and assigned a $47.50 fair value estimate on shares of Netflix Inc. (NFLX) on Apr. 22.
On Apr. 21, Netflix said first-quarter profit rose 44% as the movie subscription service signed up new customers and increased online offerings.
Net income advanced to $32.3 million, or 59 cents a share, from $22.4 million, or 37 cents, a year earlier, the Los Gatos, California-based company said in a statement. Sales rose 25% to $493.7 million, meeting the average estimate of 24 analysts surveyed by Bloomberg.
First-quarter profit topped analysts’ predictions of 54 cents a share, the average of 28 estimates in a survey.
The company projects second-quarter earnings will rise to 62 cents to 73 cents a share on sales of as much as $525 million. Analysts surveyed by Bloomberg estimated profit of 72 cents on revenue of $516.4 million.
Earnings for the full year will be $2.41 to $2.63 a share on sales of as much as $2.16 million. Analysts expected profit of $2.65.
“[W]e believe NFLX remains overvalued based on street expectations that do not adequately discount: 1) potential changes in the competitive environment (Redbox and digital threats), 2) content cost inflation as studios exercise more control over supply, and 3) digital risks that will only multiply as NFLX pushes more subscribers towards digital content,” wrote Wible in a note.
“We readily acknowledge that our SELL call has not worked,” Wible wrote. “While our timing has been off, we still cannot ignore the threats facing NFLX from intensifying competition, cost inflation, and digital commoditization.”
Apr. 23
Amazon.com Inc.: Janney Montgomery Scott equity analyst Shawn Milne reiterated a buy rating on shares of Amazon.com Inc. (AMZN) on Apr. 23. He also raised a fair value on the shares to $175 from $160.
Amazon.com predicted second-quarter earnings that missed analysts’ estimates on Apr. 22, signaling the Web retailer isn’t benefiting from a rebounding economy as much as some investors had expected as competition intensifies. Amazon.com said operating income will be $220 million to $320 million. Analysts in a Bloomberg survey predicted $322.2 million on average.
Revenue this quarter will be $6.1 billion to $6.7 billion, Amazon.com said. Analysts had predicted $6.84 billion on average for the first quarter and $6.4 billion for the second quarter.
First-quarter net income rose to $299 million, or 66 cents a share, from $177 million, or 41 cents, a year earlier. Analysts in a Bloomberg survey estimated 61 cents on average. Sales increased to $7.13 billion.
In a note, Milne said he was maintaining a positive view on the E-commerce sector, with an improved growth outlook of 5% to 10% for 2010. He expects Amazon.com to continue to post market share gains despite increased competition, based on an improved pricing and shipping strategy and an expanded merchandise selection
Milne said he sees rapid growth in third-party sales on Amazon.com, “which fuels stronger unit growth and helps insulate margins”. The analyst said he believes the company’s increasing leverage over fixed costs is “driving margin upside”.
Milne raised a 2010 non-GAAP earnings per share (EPS) estimate to $3.65 from $3.50.
Continental Airlines Inc.: Jesup & Lamont equity analyst Helane Becker reiterated a buy rating on shares of Continental Airlines Inc. (CAL) on Apr. 23, with a $26 price target.
Continental, the focus of merger talks with UAL Corp.’s United Airlines, reported a wider first-quarter loss than analysts projected on Apr. 22. Continental, the fourth-biggest U.S. carrier, had a loss excluding one-time costs of $136 million, or 98 cents a share, more than the average 86-cent loss from eight analyst estimates compiled by Bloomberg.
Higher jet-fuel prices raised total operating costs, and an easing of the recession prompted businesses to resume travel. Continental’s revenue from each seat flown a mile, an indicator of demand and fares, rose 5.4 percent from a year earlier.
“Continental is well positioned in international markets, where the premium business class passenger is returning to the air, generating positive revenue gains for the airline,” wrote Becker in a note.
Becker noted that weather-related flight cancelations cost the company about $15 million in the first quarter. Revenues in the quarter were up by 7.0% to $3.2 billion from $3.0 billion and costs were up by 6.7% to $3.2 billion from $3.0 billion.
For the second quarter, Becker estimates EPS of 82 cents, vs. a loss excluding extraordinary items of $1.36 in the prior year, as Continental’s results last year were negatively affected by the H1N1 flu virus in May and June. This year, the negative impact of the Icelandic volcano is estimated to be $24 million, Becker said.
The analyst said Continental’s balance sheet has a “large” cash position: At the end of the quarter, unrestricted cash and short term investments was $3.15 billion, or around $22 per share. She said balance sheet debt is about $6.2 billion, with net debt at about $3.0 billion. There is about $497 million of equity on the balance sheet, Becker said.
“Continental’s management team has repeatedly indicated it would be a willing participant in industry consolidation if it made sense for its employees, its customers and its shareholders,” she wrote.
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