Analyst Picks & Pans August 12, 2010, 1:54PM EST

Stock Picks: Cisco, Estée Lauder, Sonoco

Wall Street analysts offer buy, sell, or hold opinions on stocks in the news on Aug. 12

By Businessweek.com and Bloomberg News Staff

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Cisco Systems: Oppenheimer & Co. equity analyst Ittai Kidron lowered a rating on shares of Cisco Systems (CSCO), the world's largest maker of networking equipment, to perform from outperform on Aug. 12. He removed a $32 price target on the shares.

On Aug. 11, Cisco said fourth-quarter sales climbed 27 percent, to $10.8 billion. Analysts had predicted $10.9 billion for the period ended July 31. Net income jumped 79 percent, to $1.94 billion, or 33¢ a share, from $1.08 billion, or 19¢, a year earlier. Excluding some costs, fourth-quarter profit was 43¢ a share, above the 42¢ average estimate.

Revenue in the current quarter will fall between $10.64 billion and $10.83 billion, the San Jose company said on an Aug. 11 conference call. Analysts surveyed by Bloomberg had estimated $10.95 billion.

Cisco fell as much as 12 percent in Nasdaq trading on Aug. 12.

While Cisco is expanding into more than 30 new markets, the company said concerns about the European economy and job growth in the U.S. caused it to be conservative in its forecast for growth in the fiscal first quarter.

Chief Executive John Chambers said the company was seeing "unusual uncertainty" and getting "mixed signals" about the health of the economy. While many of Cisco's customers were planning on 2 percent growth in the second half of the calendar year, the pace of the recovery in the U.S. and Europe was less clear, Chambers said. That doesn't mean the company expects the economy to worsen, he said.

Investors look to Cisco as an indication of the health of the technology industry because the company dominates the market for routers and switches, products that direct the flow of Internet traffic. Large companies account for most sales of switches, while phone and Internet service providers typically buy the more expensive routers.

In a note, Kidron said the company's fourth-quarter earnings per share (EPS) excluding costs of 43¢ was slightly higher than he had expected. Cisco's $10.8 billion in sales were "softer" than his expectations, ending three straight quarters in which the company's sales exceeded management guidance.

Kidron said he is concerned about management's commentary suggesting "a choppy and more gradual recovery," with increasing uncertainty about its large customers' spending in the second half of calendar 2010. He said declining margins are a growing concern.

The analyst said he believes Cisco's share price will likely remain "range-bound." He lowered a fiscal 2011 (ending July) pro forma EPS estimate to $1.70 from $1.80.

Estée Lauder: Oppenheimer & Co. equity analyst Joseph Altobello on Aug. 12 kept an underperform rating on shares of Estée Lauder (EL), the maker of Mac cosmetics and Clinique skin care products.

On Aug. 12, Estée Lauder said it had fourth-quarter profit of 29¢ a share on an adjusted basis. Analysts surveyed by Bloomberg had estimated profit of 30¢, on average.

First-quarter profit will be 67¢ to 80¢ a share, excluding some items, the New York company said in a statement. The average analyst estimate in a Bloomberg survey was 78¢ a share. The company forecast fiscal 2011 (ending June) profit of $2.80 to $3.05 a share excluding some items, compared with the average analyst estimate of $3.19.

Shares of Estée Lauder fell as much as 8.7 percent in early trading on Aug. 12.

In a note, Altobello said Estée Lauder's fourth-quarter results were "mixed," with sales up 9 percent (8 percent in local currency), led by growth in the skin care, makeup, and hair care categories; its earnings per share (EPS) of 29¢ was 1¢ below his estimate. He called the company's fiscal 2011 EPS guidance "disappointing." His forecast was for EPS of $3.10.

Altobello also cited concerns about "macro headwinds" for fiscal 2011, including a "sluggish" consumer environment, heightened competition, and the impact of a strong U.S. dollar.

Sonoco Products: Soleil Securities initiated coverage on Aug. 12 of shares of Sonoco Products (SON), an industrial and consumer packaging manufacturer, with a buy rating and $40 price target.

In a note, equity analyst Anna Torma said Sonoco "is positioning to be the low-cost global leader in customer-preferred packaging within targeted markets."

Torma said Sonoco is well positioned to meet its target of increasing revenue to $6 billion by 2014 through organic sales growth, geographic expansion, and strategic acquisitions.

The analyst said Sonoco "has a strong balance sheet and cash flows," with $167 million in cash and a net debt-to-capitalization ratio of 23 percent at the end of the 2010 second quarter.

Torma said shareholders should benefit from the stocks' current dividend yield of approximately 3.4 percent. "We believe that Sonoco's dividend is secure, and we expect it will grow as revenues increase," she said.