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Analyst Picks and Pans

Stock Picks: Netflix, Verizon, Shaw Group, KBR

Netflix (NFLX)

Janney Montgomery Scott reiterates sell

DVD rental company Netflix Inc. is betting that its plan to stream content to users' TVs through Sony's (SNE) PlayStation 3 gaming console may help it win millions of new customers, but the deal's benefits are uncertain as competitive threats from other digital content providers remain, said Janney Montgomery Scott analyst analyst Tony Wible on Oct. 26.

Netflix shares rose 12% last week, which "largely discounts the new deal," said Wible in a note to investors. He added that uncertainty around timing, the potential for increased costs and overlap with subscribers who already stream Netflix content through their Xbox 360 gaming devices make judging the deal's benefits tough.

"We ultimately see (Netflix) being hurt," Wible wrote, due to competitive pressures from Redbox, which rents DVDs for $1 per night from in-store kiosks, and the increasing amounts of video available from Internet downloads and cable TV providers.

Verizon Communications (VZ)

Standard & Poor's Equity Research maintains buy; lowers estimate, price target

S&P equity analysty Todd Rosenbluth said on Oct. 26 that Verizon posted third quarter earnings per share (EPS) of 60 cents, vs. 59 cents EPS one year earlier, below his 65 cents estimate and before one-time items. Revenues and EBITDA matched his forecast, noted Rosnebluth, but EPS trailed his view on higher non-operating costs.

Verizon's wireless business remained strong, said the analyst, with 1.2 million customer adds and margin expansion, though voice revenue was under pressure.

"We see room for wireless growth in 2010, but think wireline will lag until [the] job market improves," said Rosenbluth.

The analyst narrowed his 2010 EPS estimate by 9 cents to $2.59 and his 12-month price target by $1 to $34. "But with cash flow growth, we see Verizon as attractive aided by its 6.5% dividend yield," he added. Shaw Group (SHAW)

Stifel Nicolaus upgrades to buy from hold


Stifel Nicolaus downgrades to hold from buy

Business for Shaw Group should increase as oil prices rise, Stifel Nicolaus analyst Barry Bannister said on Oct. 26 as he upgraded shares of the engineering and construction company.

Although Bannister said the "primary driver" of oil prices has been the weak U.S. dollar, Shaw should benefit due to its project backlog, he said. "(Shaw) stock appears inexpensive vs. peers with similar (return on invested capital), and as such we believe the operational improvements instituted by management are under-appreciated," Bannister said.

Shaw is scheduled to release its fiscal fourth-quarter and full-year results Thursday. Bannister said in a note to clients said that when the company reports, his questions will focus on the timing of revenue from Shaw's nuclear plant construction projects, expansion of petrochemical work in the Middle East and other issues.

Bannister lowered his rating on KBR on Oct. 26, saying that the military contractor's profit could decline significantly this year with the exit of U.S. troops from Iraq. "Based on the rapid withdrawal from Iraq, we believe KBR faces the loss of (about) 23% of current year profits attributable to U.S. Middle East military work within at most two years," he said in a note to investors.

Bannister had other concerns about KBR, saying he is "quite weary of the mixed signals received from KBR regarding the projected profitability of large petroleum projects in which KBR is involved." Bannister said he needs "additional clarity" to determine the extent to which smaller projects can make up a possible gap if profits don't materialize in large projects.

KBR is scheduled to release its third-quarter profit before the market opens on Oct. 29. Marvell Technology Group (MRVL)

Goldman Sachs reiterates buy; raises estimates, price target

Goldman analyst James Schneider said on Oct. 26 that Marvell raised its $680 million-$730 million third-quarter revenue guidance to $760 million-$775 million, noting broad demand improvement within multiple end-markets, which he believes is driven primarily by PCs, enterprise networking, and consumer electronics. Schneider noted that the company did not comment on operating expenses or margins, but he expects it will be able to maintain gross margin in the 55% range for the next few quarters.

Schneider raised his earnings per share (EPS) estimates for fiscal 2010 (ending January) from 55 cents to 58 cents, for fiscal 2011 from 90 cents to 95 cents, and for fiscal 2012 from $1.15 to $1.20. He also hiked his $19 six-month price target to $20. Schneider said Marvell remains his top pick in semiconductors.

Biocryst Pharmaceuticals (BCRX)

Leerink Swann keeps market perform

Leering Swann analyst Joseph Schwartz said on Oct. 26 that the Centers for Disease Control and Prevention (CDC) issued emergency use authorization for IV peramivir in certain hospital patients with H1N1 influenza. Schwartz noted that Biocryst has transferred to the Dept. of Health and Human Services an initial supply of 1,200 courses of IV peramivir for 5 days, and is prepared to supply more.

Schawarz said Biocryst stock may rise modestly in response to this news, and the possibility that the CDC may report increases in H1N1 prevalence in the next few weeks. But Schwarz said that most pandemic plans call for swine flu infections to peak in October, so the peak may be approaching.

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