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Analyst Picks & Pans

Stock Picks: Home Depot, Kraft, RadioShack, Nordstrom

Home Depot Inc.: Bank of America Merrill Lynch analyst Alan Rifkin reiterated a buy rating on shares of Home Depot Inc. (HD) on Feb. 23 after the largest U.S. home-improvement retailer reported a fourth-quarter profit that topped analysts' estimates and raised its dividend for the first time since 2006.

On Feb. 23, Home Depot said net income totaled $342 million, or 20 cents a share, in the three months ended Jan. 31, compared with a loss of $54 million, or 3 cents, a year earlier. Excluding some items, earnings were 24 cents a share, above the 16 cent average of 25 estimates compiled by Bloomberg.

Rifkin said in a note that the company's earnings per share excluding items were 9 cents ahead of his 15 cents estimate, and above the company's earlier guidance of 13 cents. He noted that gross margin increased 32 basis points to 34.41%, while the company's earnings before interest and taxes (EBIT) margin increased 52 basis points to 4.99%.

Rifkin said Home Depot posted same-store sales growth of 1.2%, vs. his -4% estimate. , marking the first positive comparison since the first quarter of 2006. He estimates that store traffic increased 2.9%, while the average sales ticket declined 1.7%, to $50.01.

The analyst said Home Depot management expects 2010 earnings per share (EPS) of $1.79, a 15.5% increase, with same-store sales growth of 2.5%. Reflecting better-than-expected fourth-quarter results and the company's 2010 outlook, Rifkin raised his EPS estimates for 2010 to: $1.79 from $1.75; for 2011 to $2.12 from $2.00; and for 2012 to $2.35 from $2.25.

The analyst said Home Depot remains one of his top picks for 2010. He has a $35 price target on the stock.

Kraft Foods Inc.: Credit Suisse analyst Robert Moskow said on Feb. 23 that the firm was reinstating coverage on shares of Kraft Foods Inc. (KFT) with an outperform rating.

In a note, Moskow said he was forecasting EPS of $2.15 for 2010 and $2.45 for 2011, both above the respective Wall Street consensus estimates of $2.10 and $2.31. The analyst said he finds "the risk-reward attractive because of potential upward momentum in operating margins over the next 12 months fueled by acquisition synergies". Kraft is in the process of acquiring British confectioner Cadbury.

"Kraft plus Cadbury is now a $50 billion company with much more scale and exposure to developing markets," the analyst wrote.

Moskow has a price target of $35 on the shares.

RadioShack Corp.: KeyBanc analyst Bradley Thomas kept a hold rating on shares of RadioShack Corp. (RSH) on Feb. 23.

In a note, Thomas said the second-largest U.S. electronics chain fourth-quarter earnings per share of 60 cents was in line with the Wall Street consensus view, while same-store sales accelerated to a "solid" 6.1% vs. a 9.2% decline last year. Thomas noted that wireless sales rose 56.4%, aided by improving trends at Sprint and the inclusion of the first full quarter of T-Mobile results. Thomas is "encouraged" by improving sales trends within the wireless category, but still believes the underlying outlook for gross margin and selling, general and administrative (SG&A) expenses is "less rosy".

The analyst raised his 2010 EPS estimate to $1.76 from $1.60 and set a $1.95 estimate for 2011. Thomas said he believes the company's valuation is "relatively attractive" and downside in the stock is "fairly limited".

Nordstrom Inc.: Standard & Poor's equity analyst Jason Asaeda mainatained his hold rating on shares of Nordstrom Inc. (JWN) on Feb. 23.

Nordstrom, the U.S. department- store chain with more than 100 namesake locations, reported fourth-quarter profit that missed analysts' estimates on Feb. 23, on higher expenses related to new stores and unpaid debts. Net income more than doubled to $172 million, or 77 cents a share, in the three months that ended Jan. 30, from $68 million, or 31 cents, a year earlier. Earnings missed the 79-cent average of 19 analysts' estimates in a Bloomberg survey.

In a posting on the S&P MarketScope service, Asaeda said Nordstrom's EPS of 77 cents met his estimate. He said that he expects Nordstom to maintain positive same-store sales through fiscal 2011 (ending January), though comparisons will become tougher as the year progresses.

"We see the company benefiting from improved confidence among its core higher-income customer base, which should support increased full-price selling, as well as market share gains by its growing off-price Nordstrom Rack division," the analyst wrote.

Asaeda reiterates his fiscal 2011 EPS estimate of $2.45, within Nordstrom's guidance range of $2.35-$2.55. He raised his 12-month price target by $3 to $38.

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