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Analyst Picks & Pans

Stock Picks: Apple, Green Mountain, Priceline, Primerica

Apple Inc. Kaufman Bros. equity analyst Shaw Wu reiterated a buy rating on shares of Apple Inc. (AAPL) on May 11. He raised a price target on the shares to $320 from $315.

In a note, Wu said that his sources indicate that sales momentum for the company's line of personal computers is "strong", helped by a recent updating of the MacBook Pro to the new Intel Arrandale processor. Wu said he believes the company's Mac business is tracking to its third consecutive quarter of year-over-year unit growth of greater than 20%, indicating further market share gains.

"We are also picking up that the iPad continues to do better than expected," the analyst said, with "surprisingly strong" momentum of the iPad 3G, which sells at a $129 premium to the Wi-Fi only version.

Wu raised his forecasts for the fourth quarter to $14 billion in revenue and $2.90 in earnings per share (EPS) from $13.3 billion and $2.65, respectively; for fiscal 2010, to $58.7 billion in revenue and $13.20 in EPS from $57.5 billion and $12.75; and for fiscal 2011, to $67.5 billion in revenue and $15.00 in EPS from $65.8 billion and $14.45.

"We continue to believe that AAPL is positioned to outperform in this tough macroeconomic environment," the analyst wrote.

Green Mountain Coffee Roasters Inc.: Janney Montgomery Scott equity analyst Mitchell Pinheiro reiterated a buy rating and $115 fair value estimate on shares of Green Mountain Coffee Roasters Inc. on May 11.

Green Mountain, based in Waterbury, Vermont, announced on May 10 that the FTC has closed its investigation concerning the company's tender offer for Diedrich Coffee Inc. (DDRX). The company said that it had obtained Hart-Scott-Rodino antitrust requirements, and its $35 per share tender offer for Diedrich expired May 10. Green Mountain will acquire Diedrich for approximately $295 million.

Diedrich makes prepackaged coffee cups, known as K-cups, used in the Keurig brewing equipment produced by Green Mountain.

"We expect the transaction to close in a matter of days," Pinheiro wrote in a note. He said the acquisition is expected to be neutral to Green Mountain's EPS in fiscal 2010, which he estimates at $2.05. He expects the deal to add 20 cents per share to its fiscal 2010 EPS; he raised his forecast to $3.40 from $3.20.

"We believe the completion of the acquisition removes some of the uncertainty clouding the stock, and with the meaningful earnings accretion from DDRX, should reverse some of the negative momentum in the shares following the strong, but largely misunderstood, second quarter," the analyst wrote.

Pinheiro noted that a three-for-one stock spilt on the company's common shares will be distributed on May 17. Inc.: Standard & Poor's equity analyst Scott Kessler reiterated a hold rating and $250 price target on shares of Inc. (PCLN) on May 11.

On May 10, Priceline, the second- biggest online travel agency, forecast sales and profit that fell short of analysts' estimates, after the euro weakened and a political crisis in Greece threatened consumers' travel plans. Excluding some costs, second-quarter profit will be $2.50 to $2.70 a share, the company said in a statement. Sales will be no more than $742.6 million. Analysts surveyed by Bloomberg had estimated, on average, profit of $2.82 a share and sales of $755.9 million.

First-quarter profit excluding some costs rose 70 percent to $87.2 million a year earlier, the company said. Sales increased 26 percent to $584.4 million.

In a posting on the S&P MarketScope service, Kessler said that the company's first-quarter EPS of $1.06 was 6 cents above his forecast. He noted that revenue growth came on continuing strength in the international hotel business. He said that growth decelerated from the fourth quarter, reflecting the impact of the Icelandic volcano and civil unrest in Thailand, factors which will likely affect second-quarter results. Rental car days declined and airline tickets sold rose only 3%, the analyst said.

"While we believe PCLN executed well, we think macroeconomic uncertainty in Europe and a weakened euro will make notable outperformance more challenging," Kessler wrote.

Primerica Inc.: Keefe, Bruyette & Woods initiated coverage on shares of Primerica Inc. (PRI) with a market perform rating and $23 price target on May 11.

Primerica, the life insurer divested by Citigroup Inc., sold 21.36 million shares at $15 each as part of its initial public offering in March. Citigroup is the largest shareholder, with a 39 percent stake in the company, according to data compiled by Bloomberg. Warburg Pincus LLC, the New York-based private equity fund, is the second-largest shareholder, with a 22 percent stake.

In a brief note, KBW equity analyst Jeffrey Schuman said that Primerica "is an established company, re-launched in a way that we believe will create significant near-term EPS growth and ROE [return on equity] expansion".

"In addition to the growth trajectory, we also like Primerica's clear, focused strategy, its unique middle-market emphasis, and its low-risk profile," Schuman wrote. The analyst said he believes those positive attributes are reflected in the stock's current valuation, "limiting near-term upside in the shares".

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