Analyst Picks & Pans

Stock Picks: Dell, Google, Philip Morris, RIM


Dell: Kaufman Bros. equity analyst Shaw Wu maintained a hold rating and a $14 price target on shares of Dell (DELL) on June 4.

On June 3, Chief Executive Michael Dell, who is more than three years into a turnaround effort at the world's third-largest personal-computer maker, said he has considered taking the company private.

Speaking at a Sanford C. Bernstein & Co. conference in New York, Dell declined to say what would prompt him to make the move. He said he has "every intention" of continuing to run the company and that growth-revival plans haven't come to fruition.

"While we believe this could make sense in taking DELL out of the limelight and public scrutiny, we are not sure" how it would improve the company's fundamental position, Wu wrote in a note. He said competition from Hewlett-Packard, Apple, Acer, Cisco, and IBM "is not going to get any easier." The company's business model "remains in transition as it still has a cost disadvantage and is much less diverse, both geographically and from a product perspective, than competitors," Wu said.

The analyst said he believes going private "would take DELL out of the quarter-to-quarter grind of being a publicly traded company and perhaps allow it to take more dramatic steps to right itself out of its five-year downward spiral … [b]ut on the negative side, not having public currency could make it more difficult to make larger, transformative acquisitions.

"[W]e remain concerned with its quality of earnings and believe a sustainable turnaround could prove difficult," Wu said.

Google: Barclays Capital equity analyst Douglas Anmuth kept an overweight rating and $650 price target on shares of Google (GOOG) on June 4.

In a note, Anmuth said he was lowering earnings per share (EPS) estimates on the owner of the world's most popular search engine, based on a change in the distribution of the company's Nexus One phones and on the impact of foreign exchange moves. The analyst said his checks in the marketplace suggest that in the company's core paid search business, "overall click pricing continues to trend higher in the U.S., paid click volume has been strong, and larger European markets are holding up reasonably well in search thus far in the second quarter."

Anmuth cut pro forma EPS estimates for 2010 to $27.67, from $27.89, and for 2011 to $31.61, from $32.63. He said there have been "multiple concerns" about Google since it posted first-quarter results, but he believes the stock price "has taken much into account" and the shares are attractive.

Philip Morris International: Credit Suisse equity analyst Thilo Wrede reiterated an outperform rating on shares of Philip Morris International (PM), the world's largest publicly traded tobacco maker, on June 4. He lowered a price target on the shares to $53 from $57.

In a note, Wrede said the company's earnings growth unadjusted for currency effects is "strong" but management was likely to reduce the range of EPS guidance. Wrede said management's current guidance calls for 10 percent to 13 percent unadjusted EPS growth in 2010. He said he currently expects 13.2 percent growth as "strong pricing momentum, recovery of emerging markets in the second half of 2010, cost savings, and share buybacks will help PM deliver."

The analyst added that due to the recent strengthening of the U.S. dollar, he expects management to lower the current EPS target of $3.75-$3.85 by about 5 percent at an analyst presentation on June 23-24. He said he lowered the price target on the shares to reflect the stronger U.S. dollar.

Research In Motion: UBS Securities equity analyst Phillip Huang maintained a neutral rating on shares of Research In Motion (RIMM) on June 4. He lowered a price target on the shares to $70 from $75.

In a note, Huang said he expects Apple (AAPL) to announce its next-generation iPhone on June 7 and believes Apple may cite increasing traction in the enterprise market, which could pressure RIM. Huang also said he believes "fears over Europe are weighing" on the shares.

Huang said his research indicates increasing interest in "some alternative enterprise e-mail solutions, though we don't expect RIM to be materially impacted over the next 12 months." He said he believes a number of market factors "could potentially open the door to the first credible challenges to RIM's enterprise dominance."

The analyst lowered his EPS estimates for fiscal 2011 (ending February) to $5.10, from $5.11, and for fiscal 2012 to $5.32, from $5.37.


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