Analyst Picks & Pans

Stock Picks: Aflac, Amazon.com, FedEx, UPS


Aflac: Keefe, Bruyette & Woods equity analyst Jeffrey Schuman raised a rating on shares of Aflac (AFL), the largest supplemental health insurer, to outperform from market perform on July 1, with a price target of 60.

In a brief note, Schuman said the ratings change was based on the stock's valuation.

"We believe the wide and still-expanding profit margins, the strong and improving capitalization, and the unusual relative valuation opportunity outweigh concerns about the investment portfolio and sales momentum," the analyst wrote.

Aflac stock has been pressured by concern the company would have to write down securities tied to governments or banks in Greece and Portugal, nations whose ratings have been cut because of mounting debt. On June 28, Aflac dumped all its Greek sovereign debt at a loss to reduce the risk of further writedowns. The sale will lower earnings by $67 million this quarter, Aflac said in a statement. The Greek holdings were valued at $270 million as of Mar. 31.

Amazon.com: Janney Montgomery Scott equity analyst Shawn Milne maintained a buy rating and $175 fair value estimate on shares of Amazon.com (AMZN), the world's largest online retailer, on July 1.

On June 30, in a bid to enter the growing private-sale website business, Amazon.com agreed to buy Woot.com, a site that sells one discounted product per day. Terms of the deal weren't disclosed.

Woot.com, based in Carrollton, Tex., announced the purchase on its website. Seattle-based Amazon.com, a minority shareholder in closely held Woot.com, probably will complete the acquisition by the third quarter, Amazon.com spokesman Craig Berman said.

Sites that offer a daily deal to members grew in popularity during the recession as consumers looked for bargains and manufacturers sought ways to sell excess inventory. The purchase follows GSI Commerce's (GSIC) November acquisition of Ruelala.com, a member-only fashion sales site and comes two months after EBay (EBAY) introduced a site for clothing, shoes, and accessories.

In a note, Milne said Woot.com was an early leader in private sale e-commerce, especially within the consumer electronics segment. He noted that like online shoe seller Zappos.com, which Amazon.com acquired in November, Woot.com will operate as a separate subsidiary. "[W]e would expect Amazon to improve [Woot.com's] purchasing clout/merchandising and logistics over time," Milne said.

According to trade publication Internet Retailer, Woot.com generated $71.6 million in sales in fiscal 2009. Milne said he had previously noted that Woot.com was targeting $100 million in fiscal 2010 as it expands into new categories with such websites as wine.woot, kids.woot, sellout.woot, and shirts.woot. The analyst said he believes Amazon.com could add product to the Woot.com channel.

FedEx and United Parcel Service: UBS Securities equity analyst Rick Paterson raised ratings on shares of both FedEx (FDX) and United Parcel Service (UPS) to buy from neutral on July 1. He raised price targets on FedEx, the world's largest air-cargo carrier, to $100 from $97 and on UPS, the world's largest package-delivery company, to $74 from $72.

"With market declines sending UPS and FDX down 20-27 percent in the past couple months, we're removing the stocks from under review and upgrading both," Paterson wrote in a note.

Paterson said that after two years of earnings declines, several factors have aligned to enable the companies to deliver above-average earnings per share (EPS) growth: the operating leverage going into an economic recovery that's inherent in the companies' higher-fixed cost business models (especially FedEx); strong international volume growth, with no reported slowdown in business in Europe or Asia; an improving environment in the less-than-truckload freight category; and an overall firming in pricing.

"And all this is finally at a price we like," the analyst wrote.

Smith & Wesson Holding Corp.: Wedbush Securities equity analyst Rommel Dionisio maintained an outperform rating and $6 price target on shares of Smith & Wesson Holding Corp. (SWHC) on June 1.

On June 30, the handgun manufacturer reported fourth-quarter adjusted earnings of 8¢ a share, beating analysts' estimates of 4¢ a share.

In a note, Dionisio said the company's $90 million in fourth-quarter firearms sales topped its $81 million to $84 million guidance on strong sales of handguns for the consumer concealed-carry market, as well as tactical rifles. He noted that the strength was partially offset by disappointing sales in its perimeter security business of $14 million.

Dionisio said Smith & Wesson's firearms backlog rose $34 million in the fourth quarter, to $104 million (the first increase in four quarters), reflecting stabilization in industry sales and demand for upcoming products. He raised a fiscal 2011 (ending April) EPS estimate to 40¢ from 38¢.


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