Analyst Picks & Pans

Stock Picks: Disney, PetSmart, Dendreon, Take-Two


Walt Disney Co.: Bank of America Merrill Lynch analyst Jessica Reif Cohen raised her rating on shares of Walt Disney Co. (DIS) to buy from neutral on Mar. 4.

"At current levels, we believe [the] risk/reward [on Disney shares] is skewed highly positive", the analyst wrote in a Mar. 4 note. Disney represents "one of the most compelling equities" in the media and entertainment segment, Cohen said. "We believe the cyclical advertising recovery, a nascent consumer recovery, capital expansion projects, a new film creative cycle, [retransmission] deals [with cable operators] and continued cable network growth foster multiple catalysts that could aid DIS fundamentals".

Cohen said her new fiscal 2011 earnings per share (EPS) estimate of $2.45 is 12% higher than her previous estimate and 18 cents higher than the Wall Street consensus, reflecting her view that "substantial upside has yet to be priced into [the] shares".

Cohen said her analysis suggests that declines in unemployment can translate into "meaningful" revenue improvement for Disney's parks and resorts business. She said she expects film studio results to be aided by upcoming releases "Alice in Wonderland" and "Toy Story 3".

The analyst raised her price objective on the shares to $42 from $33.

PetSmart Inc.: Wedbush Morgan analyst Joan Storms maintained her outperform rating on shares of PetSmart Inc. (PETM).

On Mar. 3, the largest U.S. pet-store chain reported that net income for the quarter that ended Jan. 31 fell to $75 million, or 61 cents a share, beating the 56-cent average estimate of 18 analysts compiled by Bloomberg. The company projected first-quarter and annual earnings that were higher than analysts' estimates. In 2010, profit will be as high as $1.83 a share, compared with $1.59 for 2009. Analysts expect annual earnings of $1.68 a share, the average of 18 estimates compiled by Bloomberg. Sales will increase in the "low- to mid-single digit range" on a percentage basis, PetSmart said.

First-quarter profit will be 40 cents to 44 cents a share, PetSmart said, compared with 37 cents a year earlier. Analysts project first-quarter profit of 38 cents.

Storms said in a Mar. 4 note that PetSmart's 61 cents fourth-quarter EPS beat her estimates of 58 cents and the Wall Street consensus view of 56 cents; the company's $1.73-$1.83 EPS guidance for fiscal 2011 (ending January) guidance beat the $1.68 Wall Street consensus but was in line with her $1.80 forecast.

The analyst said she sees PetSmart's business in fiscal 2011 being driven by "compelling" new products; a "reset" of the company's consumables area; and improving sales of seasonal goods, hard goods, and services. She said she believes PetSmart is the best positioned specialty pet retailer "when more discretionary pet spending resumes".

Storms raised her $1.80 fiscal 2011 EPS estimate to $1.80, and her $32 price target to $35.

Dendreon Corp.: Brean Murray analyst Jonathan Aschoff reiterated his buy rating on shares of Dendreon Corp. (DNDN) on Mar. 4.

The drug developer said on Mar. 4 that its Provenge compound increased three-year survival by 40% compared with placebo in patients with metastatic castrate-resistant prostate cancer.

Aschoff said in a note that the company updated results from a trial of Provenge in metastatic castration-resistant cancer, confirming extension of overall survival. He said he believes there will be no FDA panel for Provenge; he noted that the agency even made a comment on Mar. 2 strongly to that effect, indicating to him that no panel will occur. He said he believes subsequent "more cautious language" from the FDA was "nothing more than a strictly legally accurate response and in no way indicates any FDA caution on approval".

Aschoff expects FDA approval of Provenge for in metastatic castration-resistant cancer on May 1. He maintained his $40 price target.

Take-Two Interactive Software Inc.: FBR Capital analyst Heath Terry kept an outperform rating on shares of Take-Two Interactive Software Inc. (TTWO) on Mar. 4.

On Mar. 3, Take-Two, maker of the "Grand Theft Auto" video games, reported better-than-expected results

and forecast sales and profit this quarter that top analysts' estimates on gains from "BioShock 2." In the first quarter ended Jan. 31, sales of "Borderlands," "NBA 2K10" and "Grand Theft Auto IV" led to a smaller-than-projected loss of $24.4 million, or 31 cents a share, excluding some costs, Take-Two said. That was less than the 51-cent loss analysts had estimated. Sales rose 9.3% to $163.2 million, above the $124.1 million analysts projected.

Profit for the second quarter now under way will be 20 cents to 30 cents a share, excluding some items, the company said. That exceeds the 6-cent average estimate of 15 analysts surveyed by Bloomberg. Without the release of a new "Grand Theft Auto," the company sees a full-year loss of 40 cents to 60 cents a share excluding some items. Take-Two earlier projected a loss of 48 cents to 68 cents.

In a Mar. 4 note, Terry said that Take-Two's first-quarter results were above consensus estimates on an improving retail environment, and stronger-than-expected sales of catalog product and download content. Terry noted that the company revised its guidance to reflect the net impact of the improving environment, the "strong" launch of "BioShock 2", and multiple product delays.

The analyst raised his $840 million revenue estimate for fiscal 2010 (ending October) to $895 million; he narrowed his pro forma loss estimate from 59 cents to 43 cents. Terry also raised his $11 price target to $12. He said he continues to believe the eventual announcement of the next "Grand Theft Auto" game will serve as a catalyst for the stock.


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