Analyst Picks & Pans

Stock Picks: Best Buy, Bristol-Myers Squibb, MGM Resorts


Best Buy: Janney Montgomery Scott equity analyst David Strasser reiterated a buy rating and $50 price target on shares of Best Buy (BBY) on Sept. 8.

"BBY is taking hits," Strasser said in a note. "The stock is one of the cheapest large caps in our universe … as sentiment is quite negative."

"In our opinion, the consumer electronics product cycle will prove stronger than a bet on a housing recovery," the analyst said. He said he anticipated that the company "will begin the process of showing [Wall] Street that it is increasingly focused on improving returns by pausing lower-margin growth" on its second-quarter earnings call on Sept. 14.

The analyst lowered a second-quarter earnings per share (EPS) estimate to 43¢, from 47¢.

"We continue to like BBY as a relative offensive play in what we believe will be a difficult economy," Strasser said.

Bristol-Myers Squibb: Miller Tabak equity analyst Les Funtleyder reiterated a buy rating and $28 price target on shares of Bristol-Myers Squibb (BMY) on Sept. 8.

On Sept. 7, Bristol-Myers said it plans to buy ZymoGenetics (ZGEN) for $885 million to gain full ownership of a hepatitis C drug the companies are jointly developing.

The offer of $9.75 a share in cash is an 84 percent premium on the Sept. 7 closing share price for Seattle-based ZymoGenetics. The deal is valued at $735 million, excluding cash acquired in the purchase, New York-based Bristol-Myers and ZymoGenetics said in a statement. Bristol-Myers said the acquisition is expected to reduce earnings by about 3¢ a share in 2010, and about 7¢ a share in 2011.

ZymoGenetics also is developing treatments for bone diseases, thrombosis, arthritis, melanoma, and multiple sclerosis. It markets Recothrom, a drug to control bleeding in surgery, which generated net sales of $11.9 million in the second quarter, the company said in a filing. ZymoGenetics has licensing deals with such pharmaceutical companies as German drugmaker Merck KGaA, based in Darmstadt, and Novo Nordisk (NVO), based in Bagsvaerd, Denmark.

Novo Nordisk, the world's largest maker of insulin, said it will sell its estimated 26 percent stake in ZymoGenetics to Bristol-Myers as part of the deal.

"In purchasing ZGEN we believe BMY is continuing its pattern of being price-sensitive and opportunistic," Funtleyder said in a note. He said the key asset in the deal is ZymoGenetics' pegylated-interferon treatment for hepatitis C, which is in Phase II trials. He noted that Bristol-Myers also has an early-stage hepatitis C treatment, as well as Baraclude, a medicine for hepatitis B, "so the ZGEN purchase should help bolster BMY's hepatitis franchise." The analyst noted that Merck & Co. (MRK) and Johnson & Johnson (JNJ) have recently presented "solid data" in their respective hepatitis C programs, "so BMY almost certainly felt a need to bolster its competitive position."

"We view this deal favorably, as it shows continued positive strategic actions on the part of BMY," Funtleyder said.

MGM Resorts International: Soleil Securities equity analyst Jake Fuller raised a rating on shares of MGM Resorts International (MGM), the biggest casino operator on the Las Vegas Strip, to buy, from hold, on Sept. 8. He raised his price target on the shares to $14, from $13.

In a note, Fuller said the outlook for MGM "is not much changed" since he raised the rating to hold in mid-June, "but the stock has pulled back sharply and we see valuation as attractive."

"We appear to be in the early stages of a multiyear convention recovery," the analyst said, adding that the company has "largely addressed" concerns about its balance sheet.


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