Stock Picks: CA, Bed Bath & Beyond, Dr Pepper, Hot Topic

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Dr Pepper Snapple Group Inc.: UBS Securities analyst Kaumil Gajrawala raised a rating on shares of Dr Pepper Snapple Group Inc. (DPS) to buy from neutral on Mar. 11.

Gajrawala said in a note that despite the recenbt advance in shares of the third-largest U.S. soda maker, "we believe the market is not fully valuing strong fundamentals and a rapid current and pending share repurchase".

In December, PepsiCo agreed to continue bottling some Dr Pepper Snapple soda brands, including Dr Pepper, Crush and Schweppes as part of an acquisition of two bottling companies. Under the agreement, which lasts for 20 years and can be renewed in 20-year increments, PepsiCo paid Plano, Texas-based Dr Pepper Snapple $900 million to license and distribute those brands. Gajrawala noted that Dr Pepper had received $900 million pre-tax from PepsiCo (PEP) and used $405 million of the proceeds to pay down debt. Gajrawala expects the company will receive an additional $800 million to $1.1 billion in licensing payments following the closure of Coca-Cola Co.'s (KO) acquisition of Coca-Cola Enterprises (CCE), "all of which will also likely be returned to shareholders".

The analyst said he believes Dr Pepper can continue to grow sales volumes through "a combination of expanding distribution, increasing coolers and Hispanic migration beyond core markets".

The analyst said he has a new 2010 EPS estimate of $2.33 for Dr Pepper. He raised his price target to $42 from $31.

Hot Topic Inc.: Roth Capital analyst Elizabeth Pierce kept a hold rating on shares of Hot Topic Inc. (HOTT) on Mar. 11.

Pierce said in a Mar. 11 note that the teen clothing and music retailer posted fourth-quarter EPS of 18 cents on Mar. 10, in line with her estimate and the consensus view of Wall Street analysts. She said Hot Topic's results were largely driven by difficult comparisons from the "hot-selling" Twilight and colored denim offerings from a year earlier, ongoing migration to downloading music vs. buying CDs, and lower-than-expected results from the Twilight sequel, New Moon.

The analyst noted that comparisons remain "tough" given that Hot Topic is not selling the New Moon DVD and that management initiatives "to 'level out' the peaks and valleys of the business won't happen overnight".

She cut her fiscal 2011 (ending January) EPS estimate to 22 cents from 35 cents, and her fiscal 2012 forecast to 35 cents from 43 cents. Pierce kept a $5.50 price target on the shares.

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