Stock Picks: Hewlett-Packard, Analog Devices

Plus Wall Street analyst opinions on Kinder Morgan Energy Partners and Brocade Communications

Hewlett-Packard (HPQ)

Deutsche Bank keeps a hold rating

Hewlett-Packard (HPQ) shares slipped Tuesday after the computer and printer company's fourth-quarter results showed weakness in its core businesses and that growth in PC shipments were accomplished at lower prices.

Deutsche Bank analyst Chris Whitmore said without the boost from technology services, revenue would have fallen by 13% from a year ago, excluding the effects of foreign currency fluctuations.

While he raised his revenue and earnings estimates for HP, as well as his price target, Whitmore kept his hold rating because of downward pressure in HP's printing business.

He said printer revenue in the quarter came in softer than expected and that he sees HP stepping up efforts to regain market share. Such actions usually include larger discounts.

Sales in China were a bright spot in the quarter, up 20% year-over-year, but Whitmore said margins were down indicating that HP sold more PCs but of the cheaper variety.

Windows 7 did provide a boost to sales, however, the analyst said in a research note.

Whitmore raised his fiscal 2010 revenue forecast to $119.4 billion from $116.7 billion, and earnings to $4.35 per share from $4.20. He also increased his price target to $52 from $44.

Late Monday, HP said it earned $2.4 billion, or 99 cents per share, compared with $2.1 billion, or 84 cents, in the same period a year ago. Revenue fell 8% to $30.8 billion, or down 5% on a constant currency basis. Both exceeded analysts expectations.

Analog Devices (ADI)

Broadpoint AmTech Research upgrades to buy

Shares of Analog Devices Inc. rose Tuesday after the chip maker forecast a 20% increase in revenue for the first quarter and higher-than-expected earnings as the economy gradually recovers.

The company also posted a strong fourth quarter, with a 16% growth in revenue from the prior quarter, said BMO Capital Markets analyst Ambrish Srivastava.

Late Monday, Analog Devices said it earned $105.6 million, or 36 cents per share, down from $143.9 million, or 49 cents per share, in the same period a year ago. Revenue dropped 13% to $571.6 million, but the company still beat analysts' forecasts.

Broadpoint AmTech Research upgraded Analog Devices shares to buy from neutral and raised its target to $35 from $32 following the company's better-than-expected results. The firm notes that although the company's revenue recovery is in-line with peers, the firm admits that they under-estimated the EPS power of a faster than expected revenue and gross margin recovery.

Broadpoint raised its fiscal year 2010 EPS estimate to $1.74 from $1.37 (consensus $1.32). It believes that they have been accurately modeling Analog Devices' leverage. However, it said further multiple compression is unlikely as focus shifts toward increased absolute earnings, not growth rates.

Srivastava at BMO Capital Markets said the company's automotive segment was up 37% in the quarter from the prior quarter, helped by stimulus programs, while consumer sales rose 39%.

The analyst was also impressed by a decline in operating expenses in the quarter and an increase in gross margin that should continue throughout the fiscal year. "The company continues to demonstrate the path to higher profitability," said Srivastava.

For the first quarter, Analog Devices said it expects earnings of 36 cents to 37 cents per share in the first quarter, excluding restructuring charges related to the closure of its fabrication facility in Cambridge. Analysts expect 28 cents per share.

Business Exchange

Track and share business topics across the Web.