Picks of the Week: Intel, Merck, RIM, Tyson

Wall Street analysts give their buy, sell, or hold views on 11 stocks in the news this week

Notable Wall Street analyst opinions on stocks in the news for the week of Jan. 11-Jan. 15:

Jan. 11

Research In Motion Ltd. (RIMM)

Kaufman Brothers reiterates buy

Kaufman Brothers Shaw Wu said in a Jan. 11 note that the firm hosted an investor meeting with Research In Motion at the Consumer Electronics Show (CES) in Las Vegas last week. Wu said that among key takeaways from the meeting include his belief that the BlackBerry maker has a significant advantage over other wireless companies with its push technology and better utilization of bandwidth.

"Contrary to popular belief, adding more cell towers doesn't fix the problem as it also introduces interference and cross-talk," Wu wrote in a Jan. 11 note.

Wu also believes RIM Lack of carrier exclusivity not a company concern where it has competed effectively at AT&T and in Europe. The analyst said he reiterated his buy rating on the shares as he continues to believe "the company is well positioned in the smart phone space with its vertical integration and superior push network technology." Wu sees several catalysts ahead for RIM, including a new WebKit-based browser and new BlackBerry models.

The analyst has a price target of $93 on RIM shares.

Corning Inc. (GLW)

Deutsche Bank upgrades to buy

Deutsche Bank analyst Carter Shoop upgraded shares of Corning on Jan. 11. Shoop believes Wall Street earnings estimates for the world’s biggest maker of glass for liquid-crystal displays (LCD) will trend higher following robust demand in the TV and PC markets and "tight" production capacity in 2010.

"This improved outlook, in addition to GLW’s foray into glass for thin film solar, we believe will drive its multiple higher," Shoop wrote in a note.

Shoop raised his price target on Corning shares by $5 to $24 on the assumption that Corning's glass business is worth $17 per share, while its other assets are worth $7, given the general market recovery, increased confidence in LCD demand and "a more constructive view" on its thin film solar potential.

Jan. 12

Alcoa Inc. (AA)

UBS maintains neutral; raises estimates, price target

Alcoa reported a fourth-quarter loss per share from continuing operations of 27 cents after the close of trading Jan. 11, which included a net loss of 28 cents from restructuring charges, special items and discrete tax items. UBS analyst Brian MacArthur said the aluminum producer's adjusted earnings per share (EPS) for the quarter of 1 cent was below his estimate of 3 cents and the consensus estimate of Wall Street analysts of 6 cents. MacArthur said in a Jan. 12 note that the company realized a 38.8% tax rate, and overall results benefited from higher realized aluminum prices and cost savings, offset by unfavorable currency movements and higher energy costs.

The analyst raised his EPS estimates for 2010 to $1.18 from $1.08, for 2011 to $1.10 from $1.01, and for 2012 to 98 cents from 94 cents to reflect updated costs, taxes, depreciation and a higher realized aluminum price in 2010. He also raised his price target on the shares to $18 from $16.

U.S. Steel (X)

Bank of America Merrill Lynch upgrades to buy from neutral; raises estimates, price target

BofA Merrill analyst Kuni Chen raised the firm's rating on U.S. Steel on Jan. 12, based on the steelmaker's leverage to higher steel prices, improving utilization, and improving trends in its tubular business.

Chen said in a note that the company's utilization rate should continue to rise from a second-half 2009 average of about 60% into the 80% area in 2011. With oil and gas drilling rig counts up 60% since the low in mid-2009 and improving energy prices, Chen noted, tubular steel demand should also start to recover.

"We think costs should increase only modestly over the next 2-3 years since X is integrated in iron ore and overhead absorption should improve as utilization recovers," Chen wrote.

Chen raised steel price assumptions for 2010 to $600 per ton from $550, and expects a continued recovery through 2010-11. The analyst maintained a 2010 EPS estimate of $1.00, but are raised a 2011 EPS estimate to $3.30 from $2.50 and initiated a 2012 estimate of $7.00. Chen also raised a price target on U.S. Steel to $80 from $45.

Jan. 13

Merck & Co. (MRK)

Credit Suisse upgrades to outperform from hold; raises price target

Credit Suisse analyst Catherine Arnold raised her rating on Merck shares on Jan. 13, saying that the drug company's projected five-year compound EPS growth rate of 8.3% exceeds its sector peers, yet the stock's valuation is in line with its peer average.

Arnold said in a note that she expects new interest in Merck shares will come from its product pipeline. "Appreciation for TRA [the company's clinical trial for a novel oral antiplatelate inhibitor] should build in 2010 and 2011, but the stock also offers symmetrical risk/reward on boceprevir [for treatment of hepatitis C], staph vaccine and betrixaban [prevention of deep vein thrombosis and pulmonary embolism after surgery]." The analyst also said a favorable interim analysis of the company's Vytorin (cholestorol reduction) in mid-2010 is likely to suggest trial continuation, "removing an overhang" from the shares.

Arnold also expects that synergies from the company's acquisition of Schering-Plough could result in annual cost savings of $3.75 billion in 2012 and $4 billion in 2013 and beyond. She raised her earnings per share (EPS) estimate for 2009 to $3.27 from $3.23, but lowered her EPS projection for 2010 to $3.60 from $3.69; she noted that the consensus Wall Street estimate for 2010 is $3.48. She also raised her price target on the shares to $47 from $35.

Netflix Inc. (NFLX)

Morgan Stanley reiterates overweight

Netflix announced on Jan. 13 an arrangement with Nintendo that will allow Netflix members to view the company's Watch Instantly content on their TV through Nintendo's Wii home console. The service is expected to be available in the spring. Netflix, which provides online DVD rental and video streaming, already has existing streaming relationships with Sony's (SNE) PS3 and Microsoft's (MSFT) Xbox.

Morgan Stanley analyst Scott Devitt said in a Jan. 13 note that he believes digital distribution will be a significant driver of Netflix' future subscriber growth, and that the Wii announcement and spring launch date "creates a new and meaningful [calendar] 2010 subscriber growth catalyst".

"We continue to believe that the Netflix growing digital distribution installed base, its unique hybrid distribution model, and its content catalog allow the company to remain a leader as the industry transitions to digital distribution over time", he wrote.

"We would be buyers of NFLX shares on this news and believe that the launch leaves second-half calendar 2010 earnings] estimates too low," Devitt said. The analyst said he will incorporate Wii estimates into his model for Netflix "when we have a better understanding of launch timing". He has a $59 price target on the shares.

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