Analyst Picks and Pans
Picks of the Week: Google, Goldman, Morgan Stanley, Intel
Goldman Sachs maintains buy; raises estimates, price target
Goldman analyst James Mitchell said on Oct. 16 that Google reported better third-quarter revenue, margins, headcount, and capital spending figures than he expected in its earnings release after the close of trading Oct. 15. Mitchell noted that the company's reported earnings of $6.06 per share (which excluded stock buyback expense) beat his $5.61 estimate; the company's EBITDA margin was 150 basis points above his estimate on lower-than-expected R&D spending.
Mitchell raised his $22.94 2009 earnings estimate (excluding employee stock option expense) to $23.61 per share, his $25.55 per share 2010 forecast to $27.86 per share, and his $585 price target to $635.
Bank of America (BAC)
Standard & Poor's Equity Research maintains strong buy
S&P Equity analyst Stuart Plesser said on Oct. 16 that BofA posted a third-quarter operating loss of 26 cents per share vs. earnings of 15 per share one year earlier, 16 cents wider than his estimate. Plesser noted that BofA's results included roughly $2.6 billion of writedowns largely due to improvement in its credit spreads. Loan-loss provisions remained elevated in the third quarter, said Plesser, but improved from second-quarter levels, signaling that credit conditions, although tough, are improving.
"Capital levels are strong and we continue to view the next major catalyst for these shares as the possible partial payback of TARP by year end," said the analyst in an Oct. 16 note.
Goldman Sachs (GS)
Standard & Poor's Equity Research keeps buy; raises estimates, price target
S&P Equity analyst Matthew Albrecht said on Oct. 15 that Goldman's third-quarter earnings of $5.25 per share, vs. $1.81 earnings per share one year earlier, beat his $4.01 estimate. Investment banking revenues fell vs. the second quarter, but the firm saw its backlog of deals increase significantly, said Albrecht. Revenues from trading declined as the company took on less risk across most asset classes, while principal investments benefited from fewer real estate related writedowns. The analyst raised his 2009 earnings estimate by $1.83 to $18.95 per share and lifted his target price by $11 to $216.
Lazard Ltd. (LAZ)
Oppenheimer downgrades to perform from outperform
Oppenheimer analyst Chris Kotowski said on Oct. 15 that Lazard announced after the close of trading Oct. 14 that CEO Bruce Wasserstein died unexpectedly. Wasserstein will be replaced by Vice Chairman Steven Golub as interim CEO.
While Kotowski stressed that Lazard has a broad based business that isn't overly dependent on Wasserstein personally, the analyst didn't change his $45 price target, but downgraded the shares. He noted that CEO transitions typically involve a period of disruption.
Needham rates buy; raises estimates, price target
Needham analyst Y. Edwin Mok said on Oct. 14 that Intel once again beat high expectations in its earnings report released after the close of trading Oct. 13, with its strong third-quarter results and higher guidance. Mok said the company is benefiting from strong demand for retail notebooks and Nehalem servers. Beyond the near-term, Mok believes the adoption of Microsoft's new Windows 7 operating system will lead to further revenue growth and substantially higher EPS for Intel.
The analyst raised his non-GAAP earnings forecast for 2009 from 88 cents to $1.06, and his 2010 view from $1.30 to $1.65 on higher revenue and margin estimates. He raised his price target to $28.
Wells Fargo upgrades to outperform from market perform; raises estimates, valuation range
Wells Fargo analyst Timothy Conder said on Oct. 14 that he upgraded Harley-Davidson's stock on his belief that investors have yet to fully appreciate the likely year-end 2009 supply/demand gap that should allow for low single-digits 2010-11 shipment growth and stabilizing used bike prices in the first half of 2010.
The analyst also sees a likely resumption of Harley-Davidson's share repurchase program with excess free cash flow. He raised his $1.32 2010 earnings per share estimate to $1.44 and sets a $2.12 2011 estimate. He raised his $19-$21 valuation range to $30-$32. Oct. 13
Pacific Sunwear (PSUN)
FBR Capital Markets upgrades to outperform from market perform; raises price target
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. 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.
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.
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.
Morgan Stanley (MS)
Keefe, Bruyette & Woods maintains outperform; raises estimates, price target
Keefe, Bruyette & Woods analyst Robert Lee raised his earnings expectations for Morgan Stanley on Oct. 12 after revising revenue estimates for the bank's global wealth management joint venture, Morgan Stanley Smith Barney. Lee revised his revenue model for Smith Barney, increasing his market return assumption for the quarter and adjusting the long-term impact of the retail brokerage unit. Increased revenue from that adjustment was partially offset by a slightly lower fee rate and higher expenses, Lee wrote in a research note.
Lee now predicts Morgan Stanley will earn 20 cents per share in the third quarter, compared with a previous estimate of 11 cents per share. Lee now expects Morgan Stanley to lose 89 cents per share for the full year, compared with a previous estimate for a loss of $1.14 per share. Lee's 2010 and 2011 profit forecasts were increased. The KBW analyst now expects Morgan Stanley to earn $3.35 per share in 2010 and $3.75 per share in 2011. He had previously forecast earnings of $3.30 per share in 2010 and $3.70 per share in 2011. Lee also raised his price target to $36 from $34.
Visa (V) MasterCard (MC)
Creidt Suisse upgrades both to outperform from neutral; increases price target on both
Increased use of credit and debit cards should translate into improved revenue for payment processors MasterCard and Visa, Credit Suisse analyst Moshe Orenbuch said Oct. 12 as he lifted his ratings on both of the stocks. Orenbuch also increased his price target on MasterCard to $255 from $210. He raised his price target on Visa to $84 from $70.
Orenbuch increased his 2010 earnings estimate for MasterCard by 30 cents per share to $12.65 per share. He established a 2011 earnings estimate of $15 per share. He predicts Visa will earn $3.50 per share in 2010. He established a fiscal 2011 earnings estimate of $4.15 per share.