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Inside Wall Street


Delta Weathers the Storm

It has been a while since an airline stock hit the top of the Street's favored list, but the world's largest carrier, Delta Air Lines (DAL), is beating the odds. Of 13 major analysts who track Delta, 12 rate it a buy, and one tags it hold. What sets Delta apart from rivals is not just its lean cost structure and aggressive cuts in overseas capacity but also the boost to its profit outlook from the October 2008 merger with Northwest Airlines. These factors make Delta an attractive buy, says Daniel McKenzie of Next Generation Equity Research, despite the shares' fast climb to 9.06, up from a 52-week low of 3.51 on Mar. 6. The stock is still below its 52-week high of 12.65 on Jan. 6, he notes, trading at about 4.5 times its earnings before interest, taxes, depreciation, amortization, and aircraft rental expense. McKenzie says it deserves to trade at 6 times earnings, or 14 a share, barring a sharp spike in oil prices. His target of 14 is based on his forecast that Delta will earn $1.20 in 2010 and $1.55 in 2011.

Standard & Poor's (MHP) Jim Corridore, who rates Delta a buy, says the merger gives the airline increased scale and big synergies on costs. Helane Becker of Jesup & Lamont, also a bull, says bookings and pricing are better than they have been all year. She sees Delta earning $1.13 a share in 2010 on sales of $33.9 billion, vs. an estimated loss in 2009.

Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

New Sparkle at Tiffany

Shares of Tiffany (TIF) vaulted to a 52-week high of 41.75 on Oct. 14, up from 16 on Mar. 6, as analysts saw fresh shine at the retailer of fine jewelry, even amid a weak economy.

Tiffany is focusing more on smaller store formats offering "lower-priced, higher-margin products that have enhanced productivity," reports Zacks Investment Research, which rates Tiffany outperform. To stop sales erosion, Tiffany has reduced its workforce and new-store openings. Zacks forecasts Tiffany will earn $1.73 a share on revenues of $2.5 billion in 2009 and $2.04 on $2.7 billion in 2010, vs. 2008's $2.34 on $2.8 billion.

Kimberly Greenberg of Citigroup (C) says Tiffany may gain from widespread liquidation of other jewelers and store closures—starting in the fourth quarter, when consumer spending should stabilize. She expects the stock to hit 50 in a year.

Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

P&G Is Set to Bubble Up

Procter & Gamble (PG), No. 1 in consumer products, is supposed to be the ultimate defensive enterprise for weathering hard times. But sales in fiscal 2009 ended June 30 slid 3%, with flat operating-profit margins. This has restrained the stock's rise: It's at 57.33, up from a low of 43 on Mar. 9.

But Edwin Walczak of investment bank Vontobel, which owns shares, sees P&G at 73 in a year. Part of the trouble, he notes, was that the company upgraded the quality of its top products, such as Tide and Pampers, and this meant raising prices. But Walczak foresees earnings of $4.25 a share in 2011, compared with $4.14 in 2010 and $4.26 in 2009.

Douglas Lane of investment company Jefferies, who rates P&G a buy, says it's also more attractive now because of restructuring, accelerated investment spending, and new CEO Robert McDonald.

Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

Marcial writes the Inside Wall Street column for BusinessWeek. In 2008, FT Press published the book Gene Marcial's 7 Commandments of Stock Investing.


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