Analyst Picks & Pans

Stock Picks: Intel, Time Warner, Viacom


Intel: Miller Tabak equity analyst Brendan Furlong maintained a neutral rating and $25 price target on shares of Intel (INTC) on Aug. 5.

On Aug. 4, the U.S. Federal Trade Commission said Intel, the world's largest computer chipmaker, can't use threats, retaliation, or exclusive deals to block customers from buying competitors' products under a settlement of antitrust charges. The settlement covers graphics chips, central processors, and chip sets, the FTC said.

Under the settlement, Intel agreed not to give computer makers any discounts or other inducements in exchange for promises they will buy chips exclusively from Intel, the FTC said. The company can't withhold these perks from customers that also buy from Intel's competitors, the agency said. Intel can still offer volume discounts and match rivals' price cuts, according to the agreement.

The settlement will require Intel to change agreements with Advanced Micro Devices (AMD), Nvidia (NVDA), and Via Technologies in Taiwan so the chipmakers can enter into mergers and joint ventures with other companies without fearing a patent infringement lawsuit from Intel.

An Intel official said in a statement that the chipmaker hasn't admitted any violation of the law or accepted the facts alleged by the complaint.

The FTC commissioners approved the proposed settlement 4-0. Commissioner William Kovacic was recused. The public will have 30 days to comment on the settlement, and then the commissioners will vote on whether to make it final.

In a note, Furlong said the FTC settlement was "a long-term positive for Intel, as the ruling appears to us to be benign."

"However, we still have several concerns that we think are likely to keep a lid on the stock in the near term," the analyst wrote. "Investors will want to see how [computer manufacturers] report in coming weeks to confirm that PC demand is as strong as Intel is indicating." Furlong noted that investors are "likely to wait until after the summer to see if the second half of the year is indeed shaping up as Intel is forecasting."

Furlong said he had a longer-term bullish stance on Intel, citing the company's market share, product positioning, revenue, and gross margins.

"With the company at peak margins and earnings, we think the current risk-reward on the stock" warrants a neutral rating, the analyst wrote. "As the year progresses, if we get more comfortable with the risk-reward, we may turn more positive on the shares."

Time Warner: Janney Montgomery Scott equity analyst Tony Wible assigned a buy rating and a $38.50 fair value estimate to shares of Time Warner (TWX) on Aug. 5.

On Aug. 4, Time Warner, owner of the TNT television channel and Time Inc., reported second-quarter profit that beat analysts' estimates after cable television and magazine advertising increased.

Excluding some items, earnings rose to 50¢ a share, the New York company said in a statement. Analysts projected 46¢, the average of 21 estimates compiled by Bloomberg.

The company's Time Inc. magazines, which include People and Fortune, sold more advertising, as did the TNT and TBS cable networks, underscoring the U.S. advertising rebound. International ticket sales for Clash of the Titans, the film from Warner Bros., also helped boost revenue.

Time Warner raised its full-year forecast. Adjusted earnings from continuing operations in 2010 will gain at least 20 percent from $1.83 a share last year. That compares with a May forecast of an increase by a percentage "at least in the mid-teens." Analysts project earnings of $2.22, the average of estimates compiled by Bloomberg, implying growth of 21 percent.

Second-quarter net income gained 7.3 percent, to $562 million, or 49¢ cents a share, from $524 million, or 44¢ cents. Sales rose 7.7 percent, to $6.38 billion, compared with the $6.22 billion average estimate.

In a note, Wible said Time Warner posted "respectable" results for the quarter, with reported earnings per share (EPS) in line with his estimate.

"The positives overwhelmed the negatives this quarter," he said, noting record audiences for HBO, improvements in ad rates for cable networks, and early benefits to DVD sales from the company's strategy of delaying film rentals through Netflix (NFLX) and Coinstar's (CSTR) Redbox.

"Overall, we believe the results support our view that the value of content will increase as distribution becomes a commodity," he wrote.

Viacom: Standard & Poor's equity analyst Tuna Amobi kept a buy rating on the Class B shares of Viacom (VIA/B) on Aug. 5.

Viacom, the owner of MTV Networks and the Paramount Pictures film studio, said on Aug. 5 that profit rose 52 percent as cable television advertising sales climbed.

Net income increased to $420 million, or 69¢ a share, in the quarter ended June 30, from $277 million, or 46¢, a year ago, the New York company said in a statement. Excluding some items, profit of 68¢ beat the 66¢ average of analysts' estimates compiled by Bloomberg.

Sales were little changed at $3.3 billion, compared with the $3.47 billion average of 20 estimates compiled by Bloomberg.

Cable TV advertising sales increased after viewership bounced back earlier in the year at Viacom's flagship MTV network, with shows like Jersey Shore, and the Nickelodeon kids' channel. The company is also working to return cash to stockholders, announcing in June it would pay a dividend for the first time and buy back as much as $4 billion in stock amid the advertising recovery.

Ad revenue in the U.S. climbed 4 percent for cable channels, including BET and VH1. Revenue from the cable networks rose 6.4 percent, to $2.09 billion, and operating income gained 14 percent, to $789 million. Film revenue fell 9.8 percent, to $1.25 billion, dragged down by a 43 percent decline in home entertainment sales because of fewer DVD releases. The unit reported a $69 million operating profit, up from a year-ago loss, because of lower release costs.

In a posting on the S&P MarketScope service, Amobi said Viacom's EPS from continuing operations were 11¢ above his estimate. "We think this mainly reflected strong growth in worldwide affiliate revenues against tough film [comparisons vs. a year earlier]," he wrote. Amobi said domestic advertising growth of 4 percent was "surprising;" he expects increased benefits in 2010 from MTV's upfront advertising sales and a "strong" market for so-called scatter ads, those sold closer to air date.

"A recent strategic shift toward software (vs. hardware) also seems to be stemming losses on Rock Band video games, even as VIA.B pushes further into social gaming," he said.

Amobi said the company's new dividend policy and share buyback plan "should address capital allocation questions."


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