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Analyst Picks & Pans

Stock Picks: Sprint Nextel, Gap

Sprint Nextel (S)

Credit Suisse upgrades to outperform from neutral

Credit Suisse upgraded wireless carrier Sprint Nextel on Nov. 16, predicting the company will stop losing net subscribers in the last few months of the year. Sprint, the third-largest carrier in the U.S., has been hemorrhaging money and subscribers. In response it has looked to improve its customer service operations and add new smart phones to its slate, including Palm Inc.'s Pre.

In a note to investors, Credit Suisse analyst Jonathan Chaplin also raised his price target to $6 from $4.

Chaplin said Sprint's subscriber base should remain flat in the fourth quarter, helped by the growth of cheaper, prepaid calling plans. That would be the first time in two years that Sprint's customer base hasn't shrunk. He expects the company to add 300,000 subscribers in 2010. On top of that, Virgin Mobile USA, which Sprint has agreed to acquire for $483 million, should add 1.2 million subscribers, Chaplin said.

Gap Inc. (GPS)

BMO Capital Markets downgrades to market perform from outperform; cuts price target

A pickup in promotions at its namesake stores and concerns about a new advertising campaign and inventory levels prompted analyst John Morris of BMO Capital Markets to lower his rating on Gap Inc. on Nov. 16.

Morris said in a client note that the apparel retailer seems to be getting more promotional at its Gap stores, as evidenced by the recent extension of a 25% off sale that was initially supposed to last for one day. Morris said the apparent increase in promotions suggests lost sales at Gap stores.

The analyst is also concerned that the San Francisco company has high expectations for its new advertising campaign and a deep inventory commitment ahead of the holidays, which may not pay off as quickly as needed.

Morris also reduced his price target for the company to $23 from $26. United Rentals Inc. (URI)

Oppenheimer upgrades to outperform from perform

United Rentals rose on Nov. 16 after Oppenheimer analyst Scott Schneeberger upgraded the shares on the equipment rental company's lower costs, significant free cash flow and stronger balance sheet. Schneeberger said the Greenwich, Conn., company had cut costs and generated robust free cash flow despite "the currently challenging demand environment."

The analyst, who has a $14 price target, said its current price makes it an attractive opportunity for investors. "We view the current (stock price) level as an opportune entry point for long-term investors to build or add positions, as URI is positioning well to weather a potentially prolonged downturn and emerge strong as conditions improve," Schneeberger said. He also increased to a loss of 75 cents from a loss of 85 cents his estimate for earnings per share next year, "despite 2010 likely representing URI's trough."

Earlier this month, United Rentals and a subsidiary said they are offering up to $572.5 million in convertible senior unsecured notes, proceeds of which will be used to pay off notes due 2014.

Schneeberger cited the company's reduced debt and extended maturities on remaining debt in his upgrade.

Concur Technologies (CNQR)

Kaufman Bros. reiterates hold; raises price target

Kaufman Bros. analyst Karl Keirstead said on Nov. 16 that after talking to a variety of sources, including smaller Concur rivals and an independent T&E consultant, he concluded that new deal activity did pick up during the third quarter, but that any rebound in corporate travel volumes is early enough and muted enough that the provider of employee expense management software is unlikely to call out a material recovery on its Nov. 17 earnings call.

"Investors are already expecting fiscal 4Q09 margin upside as well as a more encouraging tone about expense report volumes and we're not convinced that demand up-ticked by enough to exceed these expectations," wrote Keirstead in a Nov. 16 note. He pointed out that the stock has outperformed the overall equity markets since reporting fiscal third-quarter results in August and now trades at a fiscal 2010 non-GAAP taxed EPS multiple of 42 times, and at an enterprise value to 2010 revenue estimate of 6.0 times.

Keirstead also raised his price target to $42 from $40 per share.

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