Analyst Picks and Pans

Stock Picks: Goldman Sachs, Cisco Systems, Synaptics


Goldman Sachs Group (GS)

Meredith Whitney downgrades to neutral from buy, citing valuation

Bank analyst Meredith Whitney lowered her opinion on Goldman Sachs to neutral from buy. Noting the stock has risen 34% since its second quarter results, it has exceeded her price target of $186, and upside could be limited over the medium term, Whitney said in a note Tuesday.

"While we are fundamentally constructive on Goldman Sachs over the long term, we prefer to invoke a 'why be greedy' rationale and lock in profits at these levels," Whitney wrote. "We believe at current prices, the secret is out with respect to strong second half earnings, and expect the company to beat third- and fourth-quarter estimates."

Goldman is scheduled to report third-quarter results on Oct. 15.

Cisco Systems (CSCO) Standard & Poor's Equity Research reiterates buy

S&P Equity analyst Ari bensinger said on Oct. 13 that Cisco had agreed to acquire IP-based mobile infrastructure provider Starent Networks (STAR) for $3 billion in cash. Bensinger believes the pending acquisition would significantly strengthen Cisco's mobility standing, via Starent's leading market presence with Tier 1 U.S. wireless providers. Bensinger said the deal would also help deliver a clear mobility roadmap to the emerging long term evolution (LTE) technology.

The analyst views the purchase price as "reasonable" in light of Starent's sales growth trajectory (up 75% in 2008).

Synaptics Inc. (SYNA) Jefferies cuts to underperform from hold

Jefferies analyst Blayne Curtis downgraded Synaptics shares to underperform from hold, citing increasing competition in handsets and a shift to lower-priced products in the PC market. He said it looks as if orders for the current quarter are below what the maker of touchscreen technology for computers and smartphones is expecting.

The analyst said his research suggests that the company's business has deteriorated further since his last downgrade, in late July. Synaptics, he said, is facing growing market share loss and increased competition at customers such as LG, HTC and Research In Motion Ltd. (RIMM)

Curtis expects fiscal first-quarter results roughly in line with his and Wall Street's expectations, but thinks second-quarter guidance will fall short. He estimates a profit of 41 cents per share on sales of $117 million for the first quarter, which ended in September. Analysts polled by Thomson Reuters are estimating earnings of 42 cents per share on sales of $116.4 million.

For the current quarter, the analyst expects Synaptics to forecast revenue in the range of $130 million to $135 million, below Wall Street's expectations of $139 million.

He thinks product delays at Nokia Corp. (NOK) and Research In Motion, as well as inventory issues at LG, its largest customer, may hurt the company.

Pacific Sunwear (PSUN) FBR Capital Markets upgrades to outperform from market perform

Pacific Sunwear of Calif. Inc. has a new CEO, better product focus and easier year-ago comparisons, so long-term investors should begin to consider the stock, said FBR Capital Markets analyst Adrienne Tennant, who upgraded the stock to outperform from market perform. She also raised her price target to $9 from $6.

Tennant said in a note that the teen retailer is better at controlling inventory and has returned to emphasizing brands as well as introducing new brands.

In June, Pacific Sunwear hired Gary H. Schoenfeld, a former Vans chief executive, to replace CEO Sally Frame Kasaks.

"With a new CEO, easier compares in the second half of the year, and new brands that could attract an incremental customer, we believe deep-value investors should begin to look at Pacific Sunwear," Tennant said.

Still, she said the company is reversing many initiatives it started over the past 12 to 18 months, so uncertainties remain, but if sales begin improving, the stock is likely to rise as well.

Abaxis Inc. (ABAX) SunTrust Robinson Humphrey downgrades to neutral from buy

Shares of blood analysis systems company Abaxis Inc. fell Tuesday after a SunTrust Robinson Humphrey analyst downgraded the stock, pointing to weak sales of Abaxis' Piccolo xpress testing device.

Analyst Jonathan Block said sales of Piccolo systems "dropped precipitously" this year after Abaxis instituted a new sales strategy, and the company will probably need to close some large deals to reach Wall Street's expectations. If that does not happen, the stock price could drop, he said.

Block cut his rating on shares of the Union City, Calif., company to neutral from buy, and trimmed his fiscal 2010 and 2011 profit estimates. He now expects the company to earn 70 cents per share for the year ending in March, down from 71 cents per share, and 90 cents per share the following year, down from 92 cents per share.

On average, Thomson Reuters says analysts expect 71 cents per share in 2010 and 89 cents per share in 2011.

Block said Abaxis' new veterinary products are selling well, and so are its chemistry analyzer products. However he said the stock price will not rise further until sales of the medical products improve. Abaxis shares have climbed 62% over the last year, and peaked at $29.80 on Sept. 17.

Hibbett Sports (HIBB) Raymond James upgrades to outperform

Sales are likely improving at Hibbett Sports Inc., said Raymond James analyst Dan Wewer, who upgraded the stock to outperform on Tuesday. He also raised his price target to $21.

Wewer wrote in a note to investors that he has "growing confidence" that sales in stores open at least one year, a key retail metric, and margins are "firming" so far in the third quarter. That's a switch from August, when the company reported second-quarter profit fell 77% as sales slipped 6 percent to $123.1 million. At that time the company cut its fiscal 2010 guidance and Wewer downgraded the stock to market perform and set a target price of $18.

But store checks and feedback from suppliers indicate sales have improved sequentially since the beginning of the third quarter, Wewer said. "It appears the sales pick-up is broad based across all merchandise categories," he wrote.

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