Analyst Picks and Pans

Analyst Picks and Pans: WFC, AMR, CAL, UAUA, LCC, RCL


Wells Fargo (WFC)

Rochdale Securities downgrades to neutral from buy

Rochdale analyst Richard Bove said on Apr. 27 that Wells Fargo's balance sheet appears to be over-extended and should contract rather than grow in the next few quarters. He noted that the company's Tier One capital ratio at 8.28% is the lowest of the major U.S. banks; its loan to deposit ratio at 103.1% suggests it may be funding new loans with long-term debt, a strategy that suggests loan growth must be curtailed.

Bove cut his $2.20 2009 EPS estimate to $1.77 and his $2.87 2010 forecast to $2.22. The analyst said it may be that Wells Fargo must employ a new strategy in the coming months as it adjusts its balance sheet to the realities of more capital and reserve demands.

AMR Corp. (AMR)

Continental Airlines (CAL)

UAL Corp. (UAUA)

US Airways Group (LCC)

UBS Financial downgrades each to neutral from buy

UBS analyst Kevin Crissey said on Apr. 27 that the current revenue environment for airlines is bad enough to make future bankruptcies a possibility, even with a modest economic recovery factored in. Crissey noted that UBS doesn't forecast bankruptcies, but the numbers are close for some. He said first-quarter earnings calls of all airlines show near-term revenue trends are approximately 4% worse than he had modeled, the rate of sequential deterioration in year-over-year unit revenue has slowed, fare sales are prevalent, and international demand has worsened.

After cutting Continental, AMR, US Airways Group, and UAL, the analysts' buy-rated airline names are now AirTran Holdings (AAI), Allegiant Travel (ALGT), and Delta Air Lines (DAL).

Royal Caribbean Cruises (RCL)

Credit Suisse downgrades to neutral from outperform

Criedit Suisse analyst Scott Barry said on Apr. 27 that RCL appears less likely to outperform now that anticipated near-term catalysts have been realized, including better financial results vs. expectations, increased visibility on his above-consensus 2009 EPS estimate, diminished liquidity concerns, short covering, and an increase in investor risk appetite. Barry noted that the latest catalyst was a solid first-quarter beat at a $0.17 loss per share vs. his $0.21 loss estimate. He said critical variables for RCL include the magnitude and duration of the leisure travel downturn and changes in fuel prices and foreign currency exchange rates.

The analyst kept his $1.30 2009 EPS estimate and $14 price target on RCL shares.


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