Analyst Picks and Pans: Yum Brands, PetSmart, EchoStar

What Wall Street analysts are saying about selected stocks in the news Tuesday

Yum Brands (YUM)

UBS downgrades to neutral from buy

Shares of Yum Brands Inc. tumbled on Aug. 11 as an analyst downgraded KFC's parent company on its soft U.S. sales.

David Palmer of UBS predicts the Louisville, Ky.-based company will probably report a third-quarter same-store sales decline, with continued weakness at Pizza Hut and a slowdown at Taco Bell and KFC -- when compared with the second quarter.

In July, Yum reported its domestic same-store sales slipped 1% in the second quarter, due to an 8% decline at Pizza Hut.

Same-store sales, or sales at stores open at least a year, are a key measure of restaurant performance, because they measure growth at existing stores rather than from newly opened ones.

The analyst is also cautious on the timing of Yum's China turnaround.

"We believe the sales environment remains difficult, with odds against a near-term reacceleration," Palmer wrote in a client note.

Palmer maintained the company's $38 price target, saying his downgrade was not taking aim at its earnings potential.

PetSmart (PETM)

JPMorgan downgrades to neutral from overweight

An analyst downgraded pet supplies retailer PetSmart Inc. on Aug. 11, saying investments will take longer than expected to produce results. JPMorgan analyst Christopher Horvers also cited waning discretionary spending and a high stock price.

Horvers said PetSmart is focusing on merchandise, promotions and customer service to boost sales, but that the company may be underestimating how long it takes to improve operations and how consumers will recognize the changes. "We are confident PetSmart will learn to become a better merchant. We just believe it will take more time than is currently planned by the company," Horvers wrote in a client note.

Horvers also noted the stock is up 23% so far this year.

Horvers lowered his price target by $1 to $25, which implies shares have room to rise 9.8% from the Aug. 10 close of $22.76.

Echostar Corp. (SATS)

Citigroup upgrades to buy from sell

Citigroup also added the stock to its Top Picks Live list on Aug. 11. Analyst Jason Bazinet said he upgraded the shares because: 1) Echostar has cash and marketable securities worth $15 per share, $1 above its market value (pre-open); 2) the company generated $12 million in free cash flow in the first half of 2009, which cuts the risk of cash on balance sheet eroding over time; 3) DISH Network is now indemnifying EchoStar for all TIVO damages over $5 million, effectively capping the company's liability at about 6 cents per share; 4) DISH added customers for first time in five quarters, which should bode well for future revenues at EchoStar; and 5) the potential for new contract wins.

Bazinet raised his $13.50 price target on EchoStar to $21.

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