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Analyst Picks & Pans

Stock Picks: Nordstrom, Airgas

Nordstrom Inc. (JWN)

Deutsche Bank upgrades to buy from hold

Lean inventories, contained costs and improving sales should propel profit growth at Nordstrom Inc., said Deutsche Bank analyst Bill Dreher on Nov. 2, upgrading the high-end department store to the firm's highest investment rating.

Nordstrom has cut prices to offset sliding sales, while offering high-quality merchandise, since last fall, said Dreher in a note to investors. The strategy is resonating with the chain's core customers, he said. He also said Nordstrom is taking market share. He expects sales at stores open at least a year to have grown 8% in October. In the second quarter, that measure declined 12.3% and has been moderating since then.

Higher sales, coupled with lean inventories and reduced costs, will contribute to "meaningful" earnings per share growth, Dreher said. He set a $45 price target on the shares.

Airgas (ARG)

First Analysis Securities upgrades to overweight from equal weight

Airgas Iis well-positioned to gain from an economic recovery given improved non-tech industrial production, expectations for rising prices and its strong second-quarter results, said First Analysis Securities analyst Michael Harrison on Nov. 2 as he upgraded the industrial gas producer's stock. Harrison, who has a $58 price target on the stock, believes volumes have bottomed and margins are set to widen going forward.

"Non-tech industrial production showed slower declines in the September quarter, and this key leading indicator would turn year-over-year positive by the March 2010 quarter even if industrial production stays at September levels," he explained. As demand stabilizes, "broad-brush price hikes" are likely, Harrison said, noting that a growing number of independent packaged gas distributors expect higher prices over the next three months, according to a First Analysis Securities survey.

"We also believe an economic recovery could lead to increased acquisition activity, suggesting further top-line and margin upside for Airgas," Harrison said.

Human Genome Sciences (HGSI)

Leerink Swann Research reaffirms outperform; raises fair value outlook

Human Genome Sciences and GlaxoSmithKline (GSK) said on Nov. 2 that their experimental lupus treatment passed another key goal on its path to potentially becoming the first new drug for the disease in decades. Shares of Human Genome Sciences soared to a multiyear high on the report.

Wall Street and researchers anticipated study data from Bliss-76, hoping it would confirm positive results from a prior late-stage study. Benlysta is aimed at suppressing the immune system's response to lupus, which is an inflammatory disease prompting the body to attack its own tissue and organs. The anticipated study data, from a clinical program called Bliss-76, showed a 10-milligram dose of Benlysta, plus therapy with steroids, prompted an improvement in 43% of patients, compared with an improvement in only 33% of patients on the placebo end of the study.

Leerink Swann Research analyst Joseph P. Schwartz said on Nov. 2 that he expects Benlysta to gain regulatory approval and then reach the market by the second half of 2010. He boosted his fair value outlook for the stock to $40 from $30. He expects the company to present full results from Bliss-76 in the spring of 2010 at a medical conference.

Barnes Group (B)

R.W. Baird maintains neutral; cuts price target

Barnes Group's aerospace business will continue to feel the impact of the recession well into next year, R.W. Baird analyst Peter Lisnic said Nov. 2.

Lisnic cut his price target to $15 from $16.

Volume in industrial markets appears to be close to a bottom and the Barnes Group could benefit from improved demand, he said in a client note. "However, a bottom in the higher-margin aerospace business could be pushed well into the second half 2010," he said.

Barnes, based in Bristol, Conn., said on Oct. 30 that it earned $10.9 million in the third quarter, or 20 cents per share, down 61% from $27.8 million, or 49 cents per share in the same period last year. Revenue for the quarter ended Sept. 30 was $260.3 million, down 22% from $333.8 million in the year-ago period.

Lisnic said Barnes Group's industrial markets appear to be nearing a bottom, possibly benefiting from improved demand. But he said a bottom in higher-margin aerospace business "could be pushed well into" the second half of 2010. He increased his 2009 earnings estimate to 79 cents per share from 75 cents, but cut his 2010 estimate to 95 cents per share from $1.05 on lower profitability assumptions.

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