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Analyst Picks & Pans

Stock Picks: Priceline, UPS Inc. (PCLN)

Sidoti & Co. downgrades to neutral from buy; lowers estimates, price target

Sidoti analyst James Cakmak cut his rating on shares of online travel agency on Jan. 8, noting that the company's shares more than tripled since hitting a 52-week low prior to the release of fist-quarter 2009 results last year, compared to a 36% rise in the S&P 500 index.

"[T]he shares currently are close to fully valued", the analyst wrote in a note.

"Given PCLN's hotel-heavy business model, we trim our estimates to reflect a less optimistic stance on the pace of recovery, while taking into account that the company is partially hedged with its Name-Your-Own-Price services," he wrote. Cakmak cut his earnings per share (EPS) estimates for 2010 to $9.60 from $9.81 and for 2011 to $10.77 from $11.43. The analyst also reduced his price target on the shares to $237 from $252.

United Parcel Service Inc. (UPS)

Standard & Poor's Equity Research upgrades to buy from hold

S&P equity analyst James Corridore raised his rating on United Parcel Service on Jan. 8, saying that he expects revenue trends for the world's largest package-delivery company to improve through 2010.

On Jan. 8, UPS said that fourth-quarter EPS are likely to be in a range of 73 cents to 75 cents when it reports results on Feb. 2, citing better than expected results from both its domestic and international operations along with cost savings. That's above Corridore's estimate of 65 cents and the company's earlier guidance of 58 cents to 65 cents.

Corridore raised his EPS estimates for 2009 to $2.22 from $2.16 and for 2010 to $2.96 from $2.50. He also lifted his 12-month price target to $77 from $65.

Lennar Corp. (LEN)

Raymond James reiterates outperform; raises estimate

Raymond James analyst Buck Horne said in a Jan. 8 note that he was "encouraged" by Lennar's fourth-quarter results, released Jan. 7. The homebuilder reported EPS of 19 cents; Horne noted that the company's return to profitability on a GAAP (generally accepted accounting principles) was "solely driven" by a $352 million ($1.92 per share) reversal of previously reserved deferred tax assets.

Lennar shares rallied nearly 13% on Jan. 7 after the news.

Horne said Lennar was able to fully maximize the value of its available refund under the new changes to tax loss carryback legislation up to $320 million ($1.73 per share), which is expected to be received in early 2010. Previous estimates indicated a refund likely closer to $275 million, he said.

The analyst said Lennar management expressed a strong sense of optimism about the coming spring selling season on a conference call, as it is hearing reports from field operations that the quality of buyer traffic has meaningfully improved despite recently slow sales. Moreover, Lennar indicated pricing has generally stabilized across most markets and has actually begun to recover in a few.

"Most surprisingly to us, management actually projected that the company could return to profitability on a full-year basis in 2010 despite a likely seasonal 1Q loss," the analyst wrote.

Horne cautioned investors that the company's projection does not factor in the potential for future impairment charges, which he believes are still likely. Horne said he remains skeptical that Lennar can truly make good on its 2010 profit goal, but overall, he was encouraged by the fourth-quarter results. The analyst raised his fiscal 2010 estimate to a loss of $1.14 per share from a $1.21 loss, and initiated EPS estimates of 70 cents for fiscal 2011 and $2.05 for fiscal 2012. He has a $17.50 price target on the shares.

Hasbro Inc. (HAS)

Wedbush Securities upgrades to outperform from neutral; raises price target

Wedbush analyst Chris White raised his rating on shares of toymaker Hasbro on Jan. 8. While he thinks 2010 earnings are likely to be "flattish" with 2009, his improved outlook on the stock was driven by the company's potential earnings growth in 2011 and beyond.

White wrote in a note that retail toy pricing held up better than expected in December, as "lean inventories appeared to keep discounting in check". He raised his fourth-quarter revenue estimate by $40 million to $1.34 billion and expects EPS of 85 cents, vs. the Wall Street consensus forecast of 81 cents. He also lifted his estimates for 2010, and now expects revenue of $4.007 billion and GAAP EPS of $2.25, up from $3.919 billion and $2.15 previously.

"We believe the main reason to own the stock, however, is 2011, when we expect nearly 15% revenue growth to drive a 30%+ increase in EPS" once the company's joint venture with Discovery Communications starts adding to earnings, he said. White also noted the company's 10-year licensing deal with Sesame Workshop that begins in 2011, which he thinks could add as much as 8 cents to 10 cents annually in EPS. He also noted that Hasbro will be producing toys tied to at least five films in 2011, including Spider-Man 4 and Transformers 3.

The analyst also raised his price target on the shares to $39 from $29.

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