Markets & Finance

Analyst Actions: Capital One, Palm, Smith & Wesson, Jabil Circuit


Opinions from various analysts on Friday

From Standard & Poor's Equity ResearchMERRILL DOWNGRADES CAPITAL ONE, AMERICAN EXPRESS, DISCOVER TO SELL FROM NEUTRAL

Merrill Lynch analyst Kenneth Bruce says he believes deterioration in consumer credit and spending will continue to undermine fundamentals of Capital One Financial (COF), American Express (AXP), and Discover Financial Services (DFS) and lead to share price declines.

Bruce thinks there is more downside risk to Discover, as it is most credit sensitive, though thinks American Express is unlikely to perform well on an absolute basis in a consumer-led recession. He figures the shares currently discount a 25%, 45% and 35% recession expectation, respectively.

He thinks earnings will likely fall for consumer finance stocks, as consumer balance sheet repair and credit losses conspire to weigh on EPS.

For AXP, he cuts $3.85 2008 EPS view to $3.40; $7.20 2008 COF estimate to $6.01, and $1.77 DFS estimate to $1.24.

CREDIT SUISSE LOWERS ESTIMATES FOR PALM

Credit Suisse analyst Michael Ounjian tells salesforce Palm (PALM) cut its second quarter guidance due primarily to a delay in certifying a product, although it is unclear which new product was expected to ship during the second quarter, and it was previously unclear that guidance assumed a product launch in addition to Centro (a smaller, lighter version of PALM's flagship Treo).

Ounjian notes higher-than-expected warranty expenses and a mix shift toward Centro contributed to margin weakness at PALM. Given recent challenges, he believes the near-to-medium term outlook for PALM remains challenging.

He cuts his $0.11 fiscal year 2008 (May) EPS view to $0.11 loss, $0.11 fiscal year 2009 EPS to $0.09 EPS. He maintains neutral rating with a $6 target price.

COWEN CUTS SMITH & WESSON TO NEUTRAL FROM OUTPERFORM

Cowen analyst Caivon Rumohr says Smith & Wesson (SWHC) second quarter EPS is on track, and fiscal year 2008 guidance was cut mainly due to overstuffed channel due to poor hunting season. He notes that the company was particularly hit hard since it didn't start shipping its i-Bolt and shotguns lines until mid-September, and had a big box retailer cancel an order due to glut; and inventory ballooned.

While the company said demand is starting to turn, response to new long gun reception is mixed. Given mixed reaction to the company's new long guns, its misread of channel glut, guidance, limited visibility into competitors' inventories, he assumes that fourth quarter snapback will be weaker than the company suggests.

He cuts $0.53 fiscal year 2008 (April) EPS estimate to $0.36, $0.79 fiscal year 2009 to $0.60.

BAIRD UPGRADES JABIL CIRCUIT TO OUTPERFORM FROM NEUTRAL

Baird analyst Reik Read notes while he continues to have concerns regarding consumer end markets and Jabil Circuit's (JBL) transition to a vertical model in its consumer business, he's upgrading based on stable end markets in 70% of Jabil's business, anticipation of margin improvement resulting from restructuring, and attractive valuation.

Although Automotive has been weak recently, Read believes this industry near a trough and should return to low single-digit growth in 2008. He believes improved growth and restructuring efforts will lead to margin increases over medium term.

He notes that JBL is trading at 12.7 times his $1.36 fiscal year 2008 (August) EPS estimate, which near its lows over last seven years. He sets $24 price target.


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