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Analyst Picks & Pans

Stock Picks: Apple, Hershey, Microsoft, Netflix

Apple: Kaufman Bros. equity analyst Shaw Wu reiterated a buy rating and 320 price target on shares of Apple (AAPL) on June 15.

On June 15, Apple said it will begin selling a "completely redesigned" version of its Mac Mini computer, adding the basic desktop model to the list of products it has upgraded or unveiled this year.

The computer, which starts at $699, is more energy-efficient than its predecessor and has stronger graphics capabilities, the Cupertino (Calif.)-based company said in a statement. The Mac Mini is sold without a monitor, keyboard, or mouse.

"[T]he Mac mini getting a face-lift sooner, rather than later, somewhat surprised us," Wu said in a note. "This is the most significant form factor change for the Mac mini since it was introduced in January 2005."

Wu noted that the redesigned computer now uses an aluminum unibody construction, similar to that used for Apple's iMac and MacBook Pro offerings. He said an HDMI port has been added to the Mac Mini, making it easier to connect to a TV.

The analyst called the $699 price of the base model "somewhat disappointing". He said that the company's Mac Pro and MacBook Air "did not get refreshes, though supply-chain evidence continues to point to" pending redesigns of those models.

Hershey: Janney Montgomery Scott equity analyst Jonathan Feeney reiterated a neutral rating and 48 fair value estimate on shares of Hershey (HSY) on June 15.

On June 14, Hershey said it will spend as much as $300 million to expand and upgrade manufacturing, distribution, and office space in its Pennsylvania hometown. The candymaker will move production to a more modern facility from its historic 19 E. Chocolate Ave. plant, Hershey said in a statement. The shift will save up to $80 million a year, following initial costs of as much as $170 million.

Hershey is making the changes as part of a manufacturing and supply overhaul designed to cut costs. It will eliminate as many as 600 jobs as part of the switch to the new building.

Bloomberg reported the factory move and job cuts on June 1.

The company also forecast profit this year of $2.47 to $2.52 a share, excluding some charges. Analysts expect $2.49, the average of 16 estimates compiled by Bloomberg. Sales will increase 6 percent to 7 percent, the company said.

Feeney said Hershey expects the four-year initiative to require $250 million to $300 million in capital spending and $140 million to $170 million in realignment charges to generate $60 million to $80 million in savings by the end of 2014. "While HSY will not begin to realize savings 'until very late 2011,' this timing could prove auspicious, as the company's fantastic business momentum could be challenging to lap next year," he said.

The analyst said the plant modernization indicates that Hershey "continues to make responsible, long-term investments" to drive growth and lower its cost structure.

Feeney raised EPS estimates for 2010 to $2.51, from $2.47, and for 2011 to $2.69, from $2.64.

"[W]e think HSY is roughly fairly valued at 48 … with its relative ad spend and geographical footprint disadvantages offset by strong business momentum and lack of currency risk," Feeney said.

Microsoft: Standard & Poor's equity analyst Jim Yin reiterated a buy rating on shares of Microsoft (MSFT) on June 15.

On June 14, Microsoft, looking to boost profit and sales in its Xbox video game unit, said it plans to start selling a motion-controlled device called Kinect on Nov. 4, letting console users direct action by moving their bodies. The device will also support video chat. In addition, the company unveiled an exclusive deal with Walt Disney's (DIS) ESPN to put live sports events on the Xbox Live online game service, Microsoft said at a Los Angeles press conference.

In a posting on the S&P MarketScope service, Yin said that final pricing for Kinect has not been determined; he estimates the package, including several games, will cost around $150.

Kinect detects full-body motion and accepts spoken commands, Yin noted. He said he believes Kinect will boost sales of Xbox 360 because it works with existing models as an add-on peripheral.

"We think Kinect will revolutionize the video game industry by broadening its customer base to casual game players with its natural user interface," Yin wrote.

Netflix: Stifel Nicolaus equity analyst George Askew lowered a rating on shares of Netflix (NFLX) to hold, from buy, on June 15.

In a note, Askew said the rating change on the movie subscription service reflected increasing competition, including a potential subscription video offering from, which he thinks "is more substantial than many believe," and rising expectations from investors for "an upside surprise" to current earnings and subscriber estimates.

Askew also said the shares were fully valued, with Netflix trading at "a premium valuation". He said he does not expect valuation multiples on the stock "to expand materially from current levels".

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