Analyst Picks and Pans October 19, 2009, 10:38AM EST

Stock Picks: Fannie Mae, Freddie Mac, Eaton, Estee Lauder

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FBR Capital Markets upgrades to market perform from underperform; raises estimates, price target

American Express' better-than-expected credit performance led FBR Capital Markets analyst Scott Valentin to raise his rating on the stock on Oct. 19. Valentin also raised his price target to $37 from $25.

In a research note, Valentin said American Express has "far exceeded our expectations" for credit performance. That should help it return to more normalized earnings sooner than other credit card lenders, even though industrywide credit losses aren't expected to peak until the second quarter of 2010, he wrote.

Both charge-offs -- loans written off as not being repaid -- and total delinquencies improved at American Express during the first nine months of the year, Valentin said.

American Express will also benefit from a weaker U.S. dollar because of its strong international operations, Valentin said. The lender's high-net-worth customer base and corporate business should also rebound and start increasing spending again before the broader population, he added.

Valentin increased his third-quarter, full year and 2010 earnings estimates for American Express as well. He now predicts American Express will earn 37 cents per share in the third quarter and $1.30 per share for the full year. He previously forecast quarterly earnings of 27 cents per share and 2009 income of $1 per share.

Sanderson Farms ()

KeyBanc downgrades to hold from buy

Rising corn prices caused KeyBanc analyst Akshay S. Jagdale to downgrade shares of poultry producer Sanderson Farms Inc. on Oct. 19, since rising corn prices make feed costs more expensive.

Jagdale said that corn prices have risen by about 50 cents a bushel since the end of August. Jagdale attributed this to speculation that a declining U.S. dollar will boost exports, concerns about inflation, and expectations that ethanol producers will use more corn. Jagdale had previously expected corn prices would decline in coming months because of a large corn crop.

Meanwhile, demand for chicken still remains weak because of higher unemployment and soft discretionary spending that has consumers cutting back on visits to restaurants. Jagdale said Sanderson Farms doesn't expect demand from the food service business to pick until 2010, at the earliest.

Jagdale said he's heard that restaurants are serving smaller portions of chicken at lower prices, which would hurt demand even further.

Overall, however, Sanderson Farms is the best-managed U.S. chicken producer, according to Jagdale, who said he'd become more constructive on the stock if industry fundamentals improve.