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Analyst Picks & Pans

Stock Picks: Amazon, AmEx, Continental, Western Digital Inc.: Janney Montgomery Scott equity analyst Shawn Milne reiterated a buy rating on shares of Inc. (AMZN) on Apr. 23. He also raised a fair value on the shares to $175 from $160. 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. 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, 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 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, "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.

American Express Co.: Standard & Poor's equity analyst Rafay Khalid maintained a hold opinion on shares of American Express Co. (AXP) on Apr. 23. He raised a price target on the shares to $52 from $44.

American Express, the biggest U.S. credit-card issuer by purchases, said on Apr. 22 that first-quarter profit doubled as consumers boosted spending.

Income from continuing operations climbed to $885 million, or 73 cents a share, from $443 million, or 32 cents, in the same period in 2009, AmEx said in a statement. The average estimate of analysts surveyed by Bloomberg was 63 cents.

In a posting on the S&P MarketScope service, Khalid said AmEx's first-quarter operating EPS of 73 cents exceeded his 56 cents estimate, reflecting higher-than-expected revenues as customers increased their level of spending, and lower loss provisions.

"While we expect AXP will accelerate certain expenses to strengthen its brand, we forecast provisions to decline in '10 on our view of stabilizing delinquency rates," Khalid wrote.

The analyst increased operating EPS estimates for 2010 to $2.81 from $2.59 and for 2011 to $2.93 from $2.81.

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.

Western Digital Corp.: R.W. Baird equity analyst Jason Noland raised a rating on shares of Western Digital Corp. (WDC) to outperform from neutral on Apr. 23. He also raised a price target on the shares to $50 from $48.

On Apr. 23, the maker of computer hard-disk drives reported fiscal third-quarter profit excluding some items of $1.71 a share, 10% higher than the average analyst estimate in a Bloomberg survey.

Noland said in a note that the company's third-quarter results were "solid", and that management guided fourth-quarter estimates above consensus expectations. The analyst expects a second-half pick-up in the corporate PC market to add to strength in a "surprisingly resilient" consumer hard-disk drive market.

He raised EPS estimates for fiscal 2010 (ending June) to $6.31 from $5.98, and for fiscal 2011 to $6.35 from $6.27.

Noland acknowledged that the fourth quarter "may offer some uncertainty" for Western Digital, but said he is a buyer of the shares given "positive and stable" supply and demand conditions against what he views as a "very attractive" valuation.

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