Analyst Picks & Pans

Stock Picks: Airgas, Ciena, Oracle


Airgas: Soleil Securities reiterated a hold rating on shares of Airgas (ARG) on Sept. 7. The price target was lowered to $64.25, from $68.

On Sept. 6, Air Products & Chemicals boosted a hostile takeover bid for Airgas (ARG) by 3 percent, to $5.5 billion, and said it will walk away unless shareholders of Airgas support its proposals at a meeting next week.

Air Products is offering $65.50 a share in cash, up from the $63.50 bid it made in July, the Allentown (Pa.)-based industrial-gas company said in a statement. Air Products is asking investors at Airgas's annual meeting on Sept. 15 to elect three director nominees and approve bylaw changes.

"If Airgas shareholders do not elect these three nominees and approve all of our proposals, we will conclude that shareholders do not want a sale of Airgas at this time," Air Products Chief Executive Officer John McGlade said in the statement. "We will therefore terminate our offer and move on to the many other attractive growth opportunities available to Air Products around the world."

McGlade is pursuing Airgas to create the biggest industrial-gas company in North America. It's the second time he's raised his bid since going public with a $60-a-share offer in February. In previous, private negotiations, he offered as much as $62 a share.

Airgas, led by CEO Peter McCausland, said in a statement that it would review the latest proposal. It rejected all of Air Products' previous offers as too low. Airgas closed at $66.67 on Sept. 3 on the New York Stock Exchange. The shares have advanced 53 percent since Feb. 4, the day before Air Products announced its initial public bid. The shares didn't trade yesterday because of the Labor Day holiday.

In a note, equity analyst Mark Gulley said he believes that Airgas' current share price already reflects its calendar 2012 earnings per share (EPS) goal of around $4.20 per share. "The shares now have just 2 percent upside to our prior price target of $68, which could also be Air Products' best and final offer," he said.

Gulley said there is "fully 26 percent downside risk" for Airgas shares, to $49.39 per share, absent the Air Products bid.

Ciena: Miller Tabak equity analyst Alex Henderson raised a rating on shares of Ciena (CIEN) to buy, from hold, on Sept. 7. He maintained an $18 price target on the shares.

In a note, Henderson said he was changing the rating on the maker of network gear for the biggest U.S. phone companies based on his belief that the optical systems market is accelerating.

Henderson said he believes that Internet service provider networks "are very tight on capacity …. We think the growth in wireless traffic over the last several years has strained the service providers' networks and forced them to shift capital" to wireless access.

"We believe large service providers such as AT&T (T) and Verizon (VZ) have been shifting traffic to wholesalers to alleviate the tight network conditions … which appears to have resulted in a scramble for capacity" among smaller providers," the analyst said. Henderson said he believes that this will broaden to "more significant spending" by the larger providers and result in a "meaningful and sustainable" acceleration in spending for optical systems.

"We believe Ciena is very well positioned … to capture an increasing share of this accelerating spending," Henderson said.

He noted that Ciena is expected to report third-quarter results before the start of trading on Sept. 8.

Oracle: Morgan Keegan equity analyst Ajaykumar Kasargod maintained an outperform rating and $28 price target on shares of Oracle (ORCL) on Sept. 7.

On Sept. 6, Oracle, the world's second-biggest software company, hired former Hewlett-Packard (HPQ) Chief Executive Officer Mark Hurd as a president and member of the board, reporting to CEO Larry Ellison. The company also said in a statement that Charles Phillips resigned as president and director. Hurd, who exited HP last month after the company said he violated standards of business conduct, will serve alongside Oracle President Safra Catz.

At HP, Hurd more than tripled profit by cutting costs and expanding beyond the company's core business of computers and printers. He oversaw an acquisition spree of more than $20 billion, letting HP branch out into services, networking equipment, and smartphones. Oracle, which also has bulked up through takeovers, would draw on Hurd's background in blending software and hardware as the company expands into server sales.

In a note, Kasargod said the hiring of Hurd adds "tremendous" operational leadership and strategic capability to Oracle. Kasargod said that with Hurd's experience at Hewlett-Packard and previously at NCR (NCR), he believes the move is of "special significance" as Oracle focuses on expanding the servers and storage business it bought as part of its January 2010 acquisition of Sun Microsystems.

Kasargod said that with the company set to post first-quarter results on Sept. 16 and host the Oracle Open World conference the following week, he believes the stock is currently undervalued.


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