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Stock Picks: Google, BofA, Shaw Group, NutriSystem

Plus Wall Street analyst opinions on Tempur-Pedic and Colfax

Google (GOOG)

Goldman Sachs maintains buy; raises estimates, price target

Goldman analyst James Mitchell said on Oct. 16 that Google reported better third-quarter revenue, margins, headcount, and capital spending figures than he expected in its earnings release after the close of trading Oct. 15. Mitchell noted that the company's reported earnings of $6.06 per share (which excluded stock buyback expense) beat his $5.61 estimate; the company's EBITDA margin was 150 basis points above his estimate on lower-than-expected R&D spending.

Mitchell believes the takeaway from Google's third quarter was improving price per click trends driving accelerating growth for its core desktop search business, especially in under-penetrated international markets such as Germany, France, Spain, Brazil, and China. He raised his $22.94 2009 earnings estimate (excluding employee stock option expense) to $23.61 per share, his $25.55 per share 2010 forecast to $27.86 per share, and his $585 price target to $635.

Bank of America (BAC)

Standard & Poor's Equity Research maintains strong buy

S&P Equity analyst Stuart Plesser said on Oct. 16 that BofA posted a third-quarter operating loss of 26 cents per share vs. earnings of 15 per share one year earlier, 16 cents wider than his estimate. Plesser noted that BofA's results included roughly $2.6 billion of writedowns largely due to improvement in its credit spreads. Loan-loss provisions remained elevated in the third quarter, said Plesser, but improved from second-quarter levels, signaling that credit conditions, although tough, are improving.

"Capital levels are strong and we continue to view the next major catalyst for these shares as the possible partial payback of TARP by year end," said the analyst in an Oct. 16 note.

Shaw Group (SHAW)

Baird downgrades to neutral from outperform

Baird analyst Andrea E. Wirth on Oct. 16 downgraded shares of engineering and construction concern Shaw Group, saying questions by federal regulators about a reactor design could spell trouble for the company's nuclear-power business.

Wirth focused her comments on an Oct. 15 decision by the Nuclear Regulatory Commission that said a key part of a reactor built by Westinghouse may not withstand a tornado, earthquake or even high winds. Shaw owns a 20% stake in Westinghouse Electric, a producer of atomic power-plant equipment.

Wirth said Shaw shares are near the firm's $32 price target and the "timing of the nuclear outlook has become increasingly uncertain."

Wirth said design-certification delays will result, possibly causing delays in approvals and "ultimately construction of the plants themselves." The start of construction of the plants was not expected until 2012 at the earliest, Wirth said. It is uncertain how long the project could be delayed.

NutriSystem (NTRI)

Janney Montgomery Scott upgrades to buy from neutral; raises estimates, price target

NutriSystem Inc.'s third quarter results could point the way to improvement in 2010 for the weight loss company, Janney analyst Mitchell Pinheiro said Oct. 16. Pinheiro said profits for NutriSystem may have reached a low point, but its results for September could be a positive sign that will create optimism about the strength of the upcoming New Years' diet season in early 2010.

NutriSystem is scheduled to make its third quarter report on Oct. 27.

In addition to upgrading the shares, Pinheiro boosted his price target on NutriSystem to $24 per share from $16. Pinheiro raised his profit estimate for NutriSystem and said he expects additional growth from a series of new programs, including the NutriSystem D plan, which is targeted at diabetes patients, tie-ins with Schwan's Home Delivery Service and Costco, and a partnership with Wal-Mart Stores Inc. that was announced earlier this month.

The analyst now expects NutriSystem to earn $1.17 per share in 2010, up from $1.03, because he thinks new customer starts will hold steady instead of declining, as they did in 2009, and new customers appear to be staying on their plans for a few weeks longer: he said new customers are staying for an average of 2.25 months, up from 2 months.

Tempur-Pedic International (TPX)

KeyBanc Capital Markets rates buy; raises price target

NutriSystem's third-quarter profit and improving business trends prompted KeyBanc Capital Markets analyst Bradley B. Thomas to raise his price target on shares of the mattress and pillow company on Oct. 16.

After the close of trading Oct. 15, Tempur-Pedic said earnings rose 7% because of higher prices, lower commodity costs and manufacturing improvements.

Sales declined 11% to $224.1 million on weakness in the U.S. and abroad, but the company still raised its earnings and sales outlook for 2009.

Thomas raised his price target to $27 from $23 on improving business trends. "We continue to view Tempur-Pedic as a strong cash flow generator with a solid balance sheet and compelling growth opportunity," Thomas wrote in a client note.

Looking to 2010, Thomas said the company will benefit from a new mattress product and advertising campaign. Thomas said management would not discuss future pricing but believes some prices may rise in early 2010 on some models.

Colfax (CFX)

KeyBanc Capital Markets downgrades to hold from buy

KeyBanc analyst Jeffrey D. Hammond downgraded the stock of Richmond, Va.-based pump and valve maker Colfax on Oct. 16, following recent gains in its stock and little sign of catalysts that might propel the shares higher.

Hammond noted that the shares have staged a solid recovery over the past several months. Since the analyst upgraded the stock on June 26 it has climbed 53%. The broader market, as measured by the Standard & Poor's 500 index, rose 19% over the same time period.

Further, two factors threaten next year's performance: A recent increase in business from power generation companies appears to have peaked; and prospects for new business from boat companies remain uncertain.

"We believe Colfax's current backlog and order momentum (excluding cancellations in commercial marine) should position the company for a solid second half of 2009; however, we would look for greater visibility into 2010 before becoming more constructive," he wrote in a client note.

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