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Analyst Picks & Pans

Stock Picks: Intel, JPMorgan Chase

Intel Corp. (INTC)

Kaufman Bros. maintains buy; raises estimates

Intel reported better than expected fourth quarter earnings after the close of trading Jan. 14. Kaufman Bros. analyst Suji De Silva said in a Jan. 15 note that the world's largest chipmaker had a strong quarter, and maintained his buy rating on the shares.

De Silva said Intel's fourth-quarter revenue of $10.569 billion, up 12.6% from the preceding quarter, was better than Wall Street consensus expectations for $10.2 billion. The analyst added that strength came primarily from enterprise server upgrades (with Intel's data center segment posting a 22% quarter-over-quarter gain) and broad-based strength in notebooks. De Silva said he believes that not only was demand strong, but the mix of products sold was "richer than expected", contributing to a higher than expected gross margin of 64.7%, vs. his expectation of 62%.

The company's earnings per share (EPS) of 40 cents beat the consensus estimate by 9 cents, he noted, reflecting revenue and margin upside, and were impacted unfavorably by 15 cents due to a one-time settlement payment. Following the strong quarter, Intel management issued guidance for a seasonal first-quarter revenue decline of 5%-12%.

"We see willingness of customers to purchase higher-end servers and notebooks despite economic conditions as a positive indicator of the strength of INTC's product offerings," the analyst wrote. De Silva said he expects this strength to continue into 2010. The analyst raised his 2010 revenue and EPS expectations from $38.95 billion (up 12%, year-over-year) and $1.52, respectively, to $40.4 billion (up 15%) and $1.56, with a higher-than-expected tax-rate offsetting higher revenue and margins.

"We believe investors are taking a conservative stance on what we believe are conservative expectations for growth and margins for INTC," wrote De Silva. He kept a $25 price target on the shares.

JPMorgan Chase (JPM)

Standard & Poor's Equity Research maintains strong buy

JPMorgan Chase reported better than expected fourth quarter earnings on Jan. 15. S&P equity analyst Matthew Albrecht noted that the the second-largest U.S. bank's fourth-quarter EPS of 74 cents, vs. a loss of 28 cents per share one year earlier, beat his 65 cents estimate on a lower effective tax rate. Albrecht said revenues were lower than his estimate, primarily on reduced trading revenues. Charge-offs and provisions were each lower than Albrecht's projections, "suggesting a slight improvement" in the outlook for the bank's loan book.

"We think lower provisions and efficiencies from acquisitions will boost the pretax margin in 2010, and we are keeping our $3.38 earnings estimate despite projecting a slight decline in revenues," Albrecht wrote.

The analyst also kept a $57 target price on the stock.

NuSTAR Energy (NS)

Holly Energy Partners (HEP)

Wells Fargo upgrades to outperform from market perform

ONEOK Partners, L.P. (OKS)

Wells Fargo downgrades to market perform from outperform

Wells Fargo analyst Michael Blum on Jan. 15 raised his ratings on two energy-focused master limited partnerships (MLPs): NuSTAR Energy and Holly Energy Partners, and lowered his opinion on ONEOK Partners, another MLP.

Blum said in a note that he raised valuation ranges across the group of MLPs he covers by a median of 9% to reflect a lower market risk premium as "investors' risk appetite continues to increase". He said his revised valuation ranges suggest median total return potential of 13%, which still compares favorably to Wells Fargo's equity strategists' 2010 total return forecast for the S&P 500 index of 0%.

"MLPs should still deliver a robust yield with modest distribution growth of 3% in 2010", the analyst wrote. He said MLP valuations should be supported in 2010 by the relative attractiveness of their yields; strong access to capital markets; MLPs' high correlation to credit spreads; fund flow trends in the sector; improving energy-sector fundamentals; renewed acquisition activity; and the likelihood of a continued low interest rate environment in 2010.

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