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Analyst Picks and Pans

Analyst Picks and Pans: AmEx, JPMorgan, H.B. Fuller

American Express Co. (AXP)

JPMorgan Chase & Co. (JPM)

Keefe, Bruyette & Woods comments on capital-raising moves

American Express and JPMorgan Chase both announced plans to sell common stock on June 1 to help satisfy preconditions for repaying government loans received last fall amid the deepening credit crisis.

The government has said that in order for a bank to repay the money it received under the Troubled Asset Relief Program, it must be able to access public equity markets. Hundreds of banks received funds as part of the program last fall as the government tried to bolster the stagnant credit and lending markets.

JPMorgan said it plans to raise $5 billion through its stock offer, while American Express plans to sell $500 million in common stock ahead of repaying the loans. JPMorgan received $25 billion as part of the government program and American Express received about $3.4 billion in funds.

Keefe, Bruyette & Woods Inc. analysts said on June 2 that eliminating interest payments on the TARP funds would more than offset any dilution from the stock offerings.

KBW analyst David Konrad increased his 2009 earnings estimate for JPMorgan to $1.40 per share from $1.25 per share to account for the additional outstanding stock and the repayment of TARP. He increased his 2010 estimate to $2.50 per share from $2.25 per share.

Analysts polled by Thomson Reuters, on average, forecast earnings of $1.50 per share for 2009 and $2.73 per share for 2010.

Konrad rates JPMorgan as outperform with a price target of $47.

KBW's Sanjay Sakhrani said American Express' capital position is more than adequate and the capital raise is being done solely to meet the government's requirement to repay the loan.

If American Express issues shares at $22 per share, or about a 15% discount to the June 1 closing price of $25.99, the capital raise would dilute yearly earnings by about 5 cents to 6 cents per share, Sakhrani wrote in a research note. However, removing interest payments paid to the government would increase earnings per share by about 20 cents, he added.

Sakhrani maintained a market perform rating on American Express and an $18 price target on its shares.

H.B. Fuller Co. (FUL)

First Analysis Securities upgrades to equal-weight from underweight

Shares of H.B. Fuller Co. have reached a fair price and should perform in line with the Standard & Poor's 500 going forward, said First Analysis Securities analyst Steven Schwartz on June 2.

The St. Paul, Minn., maker of sealants, paints and other specialty chemicals, is maintaining a stable balance sheet and cash flow, said Schwartz.

Schwartz said Fuller underperformed the S&P 500 in the second half of 2008, outperformed the index in the first quarter of 2009 and, going forward, will likely move in tandem with the index as lower raw material costs pressure Fuller's pricing as the company tries to retain volume.

Fuller's full-year goal to boost revenue between 5% and 6% with pricing is an ambitious goal, said Schwartz, who estimates 4% growth.

Schwartz raised the company's rating to equal-weight from underweight but gave no price target. First Analysis Securities does not provide 12-month price targets for stocks rated equal-weight or underweight.

Medicis Pharmaceuticals Corp. (MRX)

Obagi Medical Products Inc. (OMPI)

Thomas Weisel Partners downgrades each to market weight from overweight

Thomas Weisel Partners analyst Annabel Samimy downgraded shares of the aesthetic products makers on June 2, citing a downturn in consumer spending.

"Medicis has done an admirable job at taking its medical dermatology platform and building an aesthetics franchise that protects it from the classic pharmaceutical challenges of patent expirations, generic competitors and reformulations," Samimy wrote.

However, Samimy cut the company's 12-month price target to $18 from $20, citing a continued downturn in consumer spending and competition in the market. One of Medicis' key products is Solodyn for inflammatory lesions, which potentially faced some generic competition.

"Longer term, we view Medicis as favorably positioned within the aesthetics market," Samimy said.

Meanwhile, Samimy reaffirmed a $7 price target on Obagi.

"Despite one of the most comprehensive and versatile product offerings and its lead position in physician-dispensed dermatological products, the company has fallen victim to depressed consumer spending, much like other peers in the aesthetics class, and we believe the outlook for revenues is clouded for the remainder of the year," Samimy said.

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