Analyst Picks & Pans

Stock Picks: Disney, NYSE, Pulte, Baidu


Walt Disney Co.: BofA Merrill Lynch analyst Jessica Reif Cohen maintained a neutral rating on shares of Walt Disney Co. (DIS) on Feb. 10, noting that although the world's biggest media company has "many moving pieces," it was able to beat Wall Street expectations for fiscal first-quarter earnings.

After the close of trading Feb. 9, Disney reported fiscal first-quarter profit that beat analysts' estimates as TV revenue rose and theme-park results stabilized. Net income totaled $844 million, or 44 cents a share, compared with $845 million, or 45 cents, a year earlier, when a gain on the sale of TV stations boosted results.

In a note to clients, Cohen said that Disney showed better than expected results across nearly all segments in the first quarter. She cited "surprising" studio profitability; a "solid" cable revenue gain of 8%; improving advertising; "modestly better" underlying theme park attendance; "sluggish but sequentially improved" consumer products sales.

Cohen increased her fiscal 2010 earnings per share (EPS) estimate by one cent to $1.93, reflecting the addition of recently acquired Marvel Entertainment into her earnings model.

"Although long-term economic improvement drives upside to DIS' consumer businesses, near-term challenges remain," the analyst wrote. "We see balanced risk/reward at current trading levels."

NYSE Euronext: Credit Agricole Securities analyst Robert Rutschow upgraded his rating on shares of NYSE Euronext (NYX) to outperform from underperform on Feb. 10.

On Feb. 9, NYSE Euronext, the world's largest owner of stock exchanges, reported higher fourth-quarter profit than the average analyst estimate, helped by expense cuts and an increase in derivatives trading. Fourth-quarter profit excluding some items was 58 cents a share, beating the average forecast by 21 percent, according to data compiled by Bloomberg. Net income was $172 million, compared with a loss of $1.34 billion a year earlier.

Rutschow said in a note to clients that following the "good" fourth-quarter results, he was raising his 2010 earnings per share (EPS) estimate for NYSE to $2.15 from $1.85 and his 2011 EPS projection to $2.30 from $2.05 to reflect better expense control, good volumes at the company's Liffe European derivatives business, and more stability in cash businesses.

"While we see several headwinds facing NYSE including pricing pressure in most businesses, duplicate costs for new data centers, and market share pressure, the valuation is at a point where we see little downside and some favorable aspects," Rutschow wrote. He said he was encouraged that Liffe will benefit from turmoil around the European debt crisis.

Rutschow said he sees greater that 14% upside to his $27 price target, and views NYSE as a "somewhat defensive" play given a 5% dividend yield and earnings benefits from higher volatility.

Pulte Homes Inc.: Raymond James analyst Buck Horne reiterated a market perform rating on Pulte Homes (PHM) on Feb. 10. Pulte, the largest U.S. homebuilder, reported its 13th straight quarterly loss on Feb. 9 as a drop in market value after its purchase of rival Centex Corp. spurred a $563 million impairment charge. The net loss in the fourth quarter narrowed to $116.9 million, or 31 cents a share, from $338.2 million, or $1.33, a year earlier.

Horne said in a note to clients that Pulte's reported fourth-quarter loss of 31 cents per share was below his 72 cents EPS estimate and consensus expectations of a 19 cents loss. He said that key variances vs. his earnings model were $563 million of unanticipated goodwill impairments; $280 million of land charges (vs. his $100 million estimate); and a

larger-than-expected fourth-quarter tax benefit of $800 million (vs. his $450 million projection) as a result of the reversal of previously reserved deferred tax assets.

The analyst raised his 2010 loss per share estimate to 55 cents from 90 cents, mainly reflecting lower projected impairment charges. He maintained his EPS estimates of 40 cents for 2011 and $1.35 for 2012. "With PHM shares trading at a premium to peers while market share appears to be slipping, we reiterate our Market Perform rating," Horne said.

Baidu Inc.: Kaufman Bros. analyst Aaron Kessler maintained a hold rating on shares of Baidu Inc. (BIDU) on Feb. 10. Baidu, owner of China's most popular Internet search engine, reported on Feb. 9 that fourth-quarter net income rose 48% to 427.9 million yuan, or 12.27 yuan per share, from 288.7 million yuan, or 8.31 yuan, a year earlier. Revenue increased 40% to 1.26 billion yuan.

The company also issued a first-quarter revenue forecast that topped analyst expectations after Google Inc. (GOOG) said it may exit the world's largest Web market. Baidu said revenue will rise to between 1.2 billion yuan ($176 million) and 1.24 billion yuan in the period ending Mar. 31.

Kessler said in a note to clients that Baidu reported "modest" fourth-quarter revenue and EPS upside driven by stronger growth in advertising customers and better-than-expected adoption of its Phoenix Nest keyword auction platform.

Due to the better-than-expected fourth-quarter results and improved outlook, Kessler increased his first-quarter estimates for gross revenue to $180 million from $167 million and for pro forma EPS to $1.62 from $1.46. He also hiked fiscal 2010 forecasts for gross revenue to $920 million from $888 million, and for pro forma EPS to $9.55 from $9.15. For 2011, he raised his projections to $1.275 billion and $13.47 from $1.162 billion and $13.02, respectively.

He also increased his price target on the shares to $540 from $470. He said he maintained his hold rating as he believes the shares are fairly valued.


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