Analyst Picks & Pans

Stock Picks: MEMC, Lawson, Radian, Texas Instruments


MEMC Electronic Materials Inc.: Wunderlich Securities equity analyst Theodore O'Neill raised a rating on shares of MEMC Electronic Materials Inc. (WFR) to buy from hold on May 7, with a $15 price target on the stock.

In a note, O'Neill said that he raised the rating on MEMC, a maker of silicon wafers for solar modules and semiconductors, on both the stock's valuation and his confidence in rising revenue in its core business. He noted that the shares came under pressure last week after it reported fiscal 2010 first-quarter results, disappointing investors with a loss due to lower margins.

"Management said it has planned price increases in the next two quarters and was upbeat about making them stick," the analyst wrote. He said MEMC reiterated management's guidance for full year 2010 for earnings per share (EPS) of 70 cents to 80 cents. O'Neill said his expectation is that in order for MEMC to achieve its bottom-line targets, gross profit margins will have to increase to 35% by the fourth quarter of 2010. "Achieving that would likely be viewed as a major win for management credibility," he said.

O'Neill noted that the company's current market capitalization is three times its cash and that the shares are selling at a 25% discount to the company's peers. "We believe this provides solid downside protection," he wrote.

Lawson Software Inc.: Piper Jaffray equity analyst Mark Murphy lowered a rating on shares of Lawson Software Inc. (LWSN) to neutral from overweight on May 7. His price target on the shares is $7.75.

In a note, Murphy said the rating change was based on the stock's valuation. He said the maker of business-management software has "executed well" by expanding its operating margins from 6% in 2007 to 15% currently; he said the shares, up 164% since November 2008, vs. a 76% rise for the Nasdaq composite index, were within 4% of his $7.75 price target.

Murphy said he continues to think management's fiscal fourth-quarter (ending May) guidance "embeds a healthy dose of conservatism", and that a cyclical recovery has begun to benefit the business, enabling the shares to perform in line with the company's peer group.

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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