Analyst Picks & Pans

Picks of the Week: BlackRock, EA, Sirius XM, Time Warner


Notable Wall Street analyst opinions on stocks in the news this week:

May 4

Electronic Arts Inc.: Kaufman Bros. equity analyst Todd Mitchell reiterated a buy rating and $23 price target on shares of video-game maker Electronic Arts Inc. (ERTS) on May 4.

Mitchell said in a note that Electronic Arts will report fiscal 2010 fourth-quarter results after the close of trading May 11. He said that on Apr. 16 he raised a fiscal 2011 EPS estimate and price target for the company, due to evidence of better-than-expected sales of Battlefield: Bad Company 2, Mass Effect 2, and Dante's Inferno during the quarter, and "because we believe better retail sales in 2Q10 should support stronger valuations for the [video-game] group as a whole".

The analyst increased his projections for fourth-quarter revenues to $843 million from $800 million, and for EPS to 7 cents from 5 cents. He said his estimate implies fiscal 2010 revenue of $4.15 billion and non-GAAP EPS of 45 cents. He forecasts fiscal 2011 revenues of $3.9 billion and non-GAAP EPS of 70 cents.

"After a three-year hiatus, we expect video game industry earnings to return to a normalized basis in 2010, through a combination of improved profitability in core packaged goods businesses and a shift in revenue mix to a greater percentage of higher-growth, higher-margin digital revenue," the analyst wrote.

"The turnaround at EA in fiscal 2011 will primarily be because of the former."

Sirius XM Radio Inc.: Standard & Poor's equity analyst Tuna Amobi maintained a hold opinion and $1.50 price target on shares of Sirius XM Radio Inc. (SIRI) on May 4.

Amobi said in a posting on the S&P MarketScope service that the company's first-quarter EPS of 1 cent, vs. a 7-cent loss per share one year earlier, was 1 cent above his estimate.

"We see continued auto OEM channel momentum, vs. persistent retail after-market woes, as SIRI now looks to [the] used car market," Amobi wrote. He said Sirius XM affirmed over 500,000 net subscriber additions in 2010, 20% adjusted EBITDA growth, and positive free cash flow.

"With delisting (and reverse split) clouds dissipating, and [the prospect of] of reupping Howard Stern (perhaps on different terms)", the analyst said he was maintaining his $1.50 price target on Sirius XM.

May 5

MasterCard Inc.: Keefe, Bruyette & Woods equity analyst Sanjay Sakhrani reiterated an outperform rating and $313 price target on shares of MasterCard Inc. (MA) on May 5.

MasterCard, the world's second- biggest electronic payments network, posted a first-quarter profit that beat most analysts' estimates on May 4 as consumer spending rebounded and expenses were held in check.

Net income rose 24% to $455 million, or $3.46 per share, from $367.3 million, or $2.80, in the same period a year earlier, the company said in a statement. The average estimate of analysts surveyed by Bloomberg was $3.15. Revenue advanced 13% to $1.3 billion.

In a note, Sakhrani said that MasterCard's reported first-quarter EPS of $3.46 compared with our estimate of $3.25 and the Wall Street consensus estimate of $3.14. He said MasterCard reported "solid" results driven by stronger revenue growth along with lower expenses, primarily in marketing.

While the company "will likely face headwinds as the year progresses" from more difficult comparisons in later 2009, a stronger U.S. dollar, the impact from the loss of a few customers, higher rebates and incentives, and higher levels of marketing expenses relative to the first quarter, Sakhrani said he believes MasterCard can offset the impacts via strong processing volume growth, selective repricing initiatives, and disciplined expense management.

The analyst increased a 2010 EPS estimate to $13.55 from $13.40 to reflect "generally favorable volume trends".

Time Warner Inc.: Standard & Poor's equity analyst Tuna Amobi maintained a buy rating on shares of Time Warner Inc. (TWX) on May 5.

Time Warner, owner of the Warner Bros. film studio and TBS cable-television channel, reported first-quarter profit that beat analysts' estimates on May 5 as movie sales rose and advertising rebounded.

Excluding some items, earnings rose to 61 cents a share, the company said in a statement. Analysts projected 48 cents, the average of 17 estimates compiled by Bloomberg.

In a posting on the S&P MarketScope service, Amobi said that Time Warner's first-quarter EPS excluding items beat his estimate by 12 cents, "unsurprisingly fueled by cable networks' (HBO, TNT, TBS) subscriptions and ads". He said the increase in cable subscriptions "affirm[s] the economic rebound".

Amobi also noted positive results from the company's film studio, including the films Sherlock Holmes, The Blind Side, and Valentine's Day, with its publishing unit "also swinging to modest profits" on restructuring measures.

The analyst said Time Warner affirmed its expectation for 2010 EPS growth at a percentage rate in the mid-teens, which he thinks is "well achievable, if not conservative".

May 6

BlackRock Inc.: UBS Securities initated coverage of BlackRock Inc. (BLK) with a buy rating and $210 price target on May 6.

UBS equity analyst Glenn Schorr said in a note that he thinks BlackRock, the world's largest asset manager, is "very well positioned to benefit from the secular growth trends of 'active to passive' [fund management], the push for more tailored solutions, and continued positive fixed income flows".

"BlackRock's respected brand name, breadth of product offerings, and distribution capabilities should enable the firm to capitalize on the continued development of capital markets around the globe," he wrote.

Schorr said he thinks the stock is "attractive" given BlackRock's broad asset mix, its market leadership in passively managed index products, and its "solid" long-term performance.

The analyst set EPS estimates of $10.38 for 2010, $12.35 for 2011, and $14.50 for 2012.

JDS Uniphase Corp.: RBC Capital Markets equity analyst Mark Sue kept an outperform rating on shares of JDS Uniphase Corp. (JDSU) on May 6, with a $16 price target on the stock.

On May 5, JDS Uniphase, the maker of fiber-optic equipment, posted third quarter EPS of 10 cents, above the 9-cent average estimate of analysts in a Bloomberg survey. Sales of $332.3 million were 2.5 percent below the average estimate of $340.9 million.

Sue said in a note that JDS Uniphase's revenue missed estimates, "while its costs are rising and there is pricing pressure in its Test & Measurement segment". He noted that the lower-than-expected revenues were due to supply constraints, as "bookings are at record levels of $400 million". He said that near-term cost increases are related to acquisitions, while recent pricing action "may be primarily driven by one competitor".

The analyst said the company's guidance for June-quarter revenue of $385 million to $410 million was above the consensus view of about $370 million, as adjusted for its acquisition of Agilent Technologies Inc.'s network solutions test unit. He raised calendar-year EPS estimates for 2011 to 70 cents from 60 cents and for 2012 to 85 cents from 80 cents.

May 7

Radian Group Inc.: Keefe, Bruyette & Woods equity analyst Nathaniel Otis raised a rating on shares of Radian Group Inc. (RDN) on May 7. He lowered a price target on the stock to $15 from $18.

On May 4 Radian, the second-largest U.S. mortgage insurer, reported a third straight quarterly loss and began a public offering. The first-quarter net loss widened to $310.4 million, or $3.77 a share, from $217.4 million, or $2.69, a year earlier, the company said. It is selling as much as $550 million of shares, and underwriters may also sell an additional $82.5 million, it said.

In a brief note, Otis said the "capital raise [was] accomplished in a tough market." While the company's first-quarter results missed his expectations, Otis said he believes "the enhanced flexibility from the capital raise, overall improving trends in mortgage insurance, and material pullback in the shares provide an opportunity for significant potential upside in the shares".

Texas Instruments Inc.: Kaufman Bros. equity analyst Suji De Silva maintained a hold rating and $30 price target on shares of Texas Instruments Inc. (TXN) on May 7.

De Silva said in a note that management of the second-largest U.S. chipmaker was "upbeat" about the company's growth potential at a May 6 analyst meeting.

"Specifically, TXN targets growing twice as fast as overall semiconductor markets where it competes and reiterated the company's gross and operating margin goals of 55% and 30% respectively," the analyst wrote.

De Silva noted the company's plans to invest "aggressively" in capacity expansion, and said management also stressed steadily improving returns on capital, citing increased efficiency of new product deployments in areas such as high-volume analog, microcontrollers and application processors.

"We believe TXN is well positioned for revenue growth with strong new product/design win momentum" across its microcontrollers and application processors units, the analyst wrote. "However, we expect solid growth from TXN but limited further margin expansion."


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