Analyst Picks and Pans

Analyst Picks and Pans: LEN, ADSK, Banks


Lennar Corp. (LEN)

Credit Suisse maintains neutral

Credit Suisse analyst Daniel Oppenheim said on Mar. 31 that Lennar's first-quarter orders fell 28%, reflecting a continued difficult environment. He noted this was better than his -40% estimate, but worse than some may have hoped for following the 26% increase reported by KB Home (KBH). Oppenheim narrowed his $6.45 fiscal 2009 (ending November) loss estimate to $6.40 per share to reflect better-than-expected orders and a shift in timing of his impairment expectations.

The analyst noted that Lennar said it is "repositioning its product to meet today's consumer demand for more affordable product," but he thinks more may be needed to regain volume. He has a $7.50 price target on the stock.

Autodesk Inc. (ADSK)

UBS Financial upgrades to neutral from sell

UBS analyst Heather Bellini said on Mar. 31 that Autodesk may announce more cost cuts and a new CFO at its Apr. 2 analyst meeting, both of which could provide favorable catalysts for the shares. Bellini said it's clear Autodesk's 10% cost reduction announced in January was too little. As such, she expects another $125 million in annual operating expense cuts when the company posts first-quarter results. She noted that the company has been without a CFO for the past year.

Given her expectations for further cost cutting, Bellini raised her $0.40 fiscal 2010 (ending January) earnings per share estimate to $0.55, and her $0.68 fiscal 2011 forecast to $1.08. She doubled her $8 target price to $16.

Major U.S. banks

FBR cautions on credit trends

With first-quarter results due out in the coming weeks, investors should focus more on long-term credit deterioration at banks than one period's potential profits, according to a research note published Tuesday by the banking analysts at Friedman, Billings, Ramsey & Co. The FBR analysts said large national banks' profitability is likely to be driven by banking and trading businesses and could exceed expectations. The analysts, however, caution that credit trends will continue to deteriorate and thus any profitability in the near future is unlikely to be sustainable.

FBR wrote in the research note that stronger trading and mortgage fee income likely helped banks with those services to increase revenue compared with recent quarters. Indeed both Citigroup (C) and Bank of America (BAC) said earlier in March that they operated at a profit during the first two months of the year. The operating profit does not include such items as reserves for credit losses.

But revenue from businesses such as mortgage-banking fees and trading are often volatile and include non-cash components, meaning that better-than-expected results could just be temporary, FBR said. Eventually continued deterioration in credit quality will lead to increasing losses as more banks are forced to reserve more cash to cover rising defaults. The mounting loan losses could also force banks to raise additional capital, FBR analysts noted.


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