Analyst Picks & Pans

Stock Picks: Lowe's, Schlumberger, TJX, Garmin


Lowe's Cos.: Oppenheimer analyst Brian Nagel maintained an outperform rating on shares of Lowe's Cos. (LOW) on Feb. 22.

Lowe's, the second-largest U.S. home-improvement retailer, posted fourth-quarter profit on Feb. 22 that exceeded analysts' estimates. Net income rose 27% to $205 million, or 14 cents a share, from $162 million, or 11 cents, a year earlier. Analysts projected 12 cents, the average of estimates in a Bloomberg survey.

In a Feb. 22 note, Nagel said he looked "very favorably" upon the better-than-expected fourth-quarter results, noting that sales trends at the chain accelerated from prior periods and "presumably improved through the quarter". Nagel said better than forecast gross margins suggest a sales mix shift to more profitable products, and that improving sales trends more than offset somewhat higher expenses.

"We look upon LOW's new $5 billion share repurchase authorization as a significant vote of confidence from management and the board," said Nagel.

The analyst has a 12-18 month price target of $32 on the shares.

Schlumberger Ltd.: Morgan Stanley analyst Ole Slorer maintained an overweight rating on shares of Schlumberger Ltd. (SLB) on Feb. 22.

On Feb. 21, Schlumberger, the world's largest oilfield-services company, said it will buy Smith International Inc. for about $11 billion in an all-stock transaction, gaining sole ownership of the biggest drilling-fluids provider. Smith (SII) holders will get 0.6966 Schlumberger share for each share they hold, the companies said in a statement. Based on Schlumberger's Feb. 19 closing price, the purchase is valued at $11 billion.

Slorer said in a Feb. 22 note that he believes Smith is a "natural fit" for Schlumberger. The analyst said the Smith acquisition will position Schlumberger as the dominant service company in deepwater and global shale gas developments – "two pillars of the next energy cycle, in our view". The analyst does not expect a second suitor to make a rival bid for Smith.

Slorer said he would use short-term weakness in Schlumberger stock as an opportunity to accumulate the shares in what he expects to be a "highly accretive" transaction over the long run. He anticipates the transaction will close before the end of 2010, as announced by Schlumberger.

The analyst has a $130 price target on Schlumberger shares.

TJX Cos. Inc.: Lazard Capital analyst Todd Slater reiterated a buy rating on shares of TJX Cos. Inc. (TJX) on Feb. 22 in advance of the retailer's fourth-quarter earnings report on Feb. 24.

Slater said in a note that he was forecasting fourth-quarter earnings per share (EPS) of 91 cents, at the high end of TJX management's guidance of 90 cents to 91 cents, and in line with the Wall Street consensus view, vs. 55 cents one year earlier. He said TJX's fourth-quarter earnings were driven by strong same-store sales and increased merchandise margins.

The analyst increased his first-quarter EPS estimate to 59 cents from 58 cents, as he believes February same-store sales were tracking well (up 6%), despite unfavorable weather. "[W]e are confident that our above-consensus forecast of $3.16 [or fiscal 2011] is not only achievable, but also beatable," the analyst wrote.

Slater said TJX is often thought of as a defensive play because it outperforms in recessions, benefiting from trade-down and access to better quality inventory. "However, conventional wisdom is wrong, in our view: TJX is a discretionary name that performs well in an improving environment, and TJX's price/value advantage widens when department stores promote less," he wrote.

The analyst has a $51 price target on TJX shares.

Garmin Ltd.: Barclays Capital analyst Amir Rozwadowski reiterated an equal-weight rating on Garmin Ltd. (GRMN) ahead of a fourth-quarter earnings report for the maker of portable navigation devices on Feb. 24.

"Checks suggesting a solid 4Q coupled with our expectations that management is likely to target a return to growth in 2010 lifts our estimates heading into Garmin's [Feb. 24] earnings call," Rozwadowski wrote in a Feb. 22 note.

Rozwadowski said he believes accelerating North American demand and "healthy" partner re-orders offset tempered demand from Europe and an expected market share loss during the fourth quarter. He raised his quarter-over-quarter unit growth estimate for portable navigation devices to 64% from 45%.

The analyst raised his forth-quarter estimates for revenues to $957 million from $901 million, and for EPS to 97 cents from 83 cents.

"Looking to 2010, we believe management is likely to paint an encouraging picture of a return to growth, targeting a recovery in all business lines," the analyst wrote. "[W]e believe consensus estimates are likely to edge closer to our revised 2010 estimates" of $2.9 billion in revenue and $2.84 in EPS.

Rozwadowski has a price target of $33 on Garmin shares.


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