BEAR STEARNS DOWNGRADES GM TO UNDERPERFORM FROM PEER PERFORM
Bear Stearns analyst Peter Neavold says based on Monday's conference call regarding the UAW agreement, he concludes that the 2008-09 benefits to EPS and cash flow appear to be less than he expected. Although he expects continued strength in General Motors' (GM) international divisions in 2008, he continues to believe that the incremental buyer of GM shares over past 6+ weeks have been event-driven; the majority of near-term headlines are now over, which he believes will lead to substantial round of profit-taking into yearend.
Given the recent rally in GM shares, Neavold feels it's prudent to swap out of GM into Ford (F), as Ford still has most of its restructuring news ahead of it. He might consider turning more neutral on GM in the mid-$30s.
WESTLP CUTS ERICSSON TO REDUCE FROM BUY
After Ericsson (ERIC) cut its earnings outlook, WestLB downgrades the stock to reduce as it says the profit warning appears to be more than a short-term issue. It notes management said that "an unfavorable business mix was leading to significantly lower margins in its Networks business." The firm notes the Multimedia division also delivered disappointing results at breakeven level.
Ericsson's guidance for the fourth quarter calls for poor operating margins of around 15%. Even worse, the broker points out, management believes the current market conditions will prevail in 2008. WestLB also says that the management has a credibility issue, which will be addressed during a conference call at 15:00 CET.
STIFEL DOWNGRADES AMAZON.COM, OVERSTOCK.COM, VISTAPRINT
Stifel analyst Scott Devitt downgrades Amazon.com (AMZN) and Overstock.com (OSTK) to sell from hold, and VistaPrint (VPRT) to hold from buy; also cautious on hold-rated GSI Commerce (GSIC) given current domestic retail environment. He believes that the domestic retail environment and a slowing economy could impact Internet growth over coming quarters. He thinks valuations in the sector are full, and generally recommends the sector as a source of funds.
Devitt maintains buy ratings on eBay (EBAY), IAC/InterActiveCorp (IACI), and Liberty Media (LINTA), each of which seems reasonably-priced for a difficult economic environment. He continues to recommend the sector to investors with a long-term horizon and the capacity to handle 20%+ volatility from current levels.
BROADPOINT UPS ESTIMATES FOR LULULEMON ATHLETICA
Lululemon Athletica (LULU) says it sees third quarter comp sales up by mid-30%. BroadPoint analyst Paula Kalandiak says the company raised third quarter comp sales growth guidance to mid-30% area from mid- to high teens. She says that, besides strong sales trends, the company is benefiting from the weak U.S. dollar, as it translates its sales in Canada (87% of total fiscal year 2007 revenue) into U.S. dollars for reporting purposes.
Kalandiak notes, in constant dollars, LULU sees third quarter comps up in mid-20s. She says, with the company now expecting third quarter EPS to exceed former $0.05-$0.06 guidance, she ups her $0.05 third quarter EPS estimate to $0.08 based on higher sales assumption, 300 basis points of gross margin expansion, and 200 basis points of leverage SG&A expenses. She ups fiscal year 2008 (January) EPS to $0.35 from $0.33. However, she reiterates a neutral opinion, citing valuation.