Stock Picks: Apple, Texas Instruments, UnitedHealth

Apple Inc. (AAPL)

Credit Suisse reiterates outperform

The surge in Apple Inc. shares continued into premarket trading Oct. 20 after the company's quarterly profit soared past Wall Street expectations. After the close of trading Oct. 19, Apple reported a 47% leap in profits to $1.7 billion, or $1.82 per share.

In a note Oct. 20, Credit Suisse analyst Bill Shope told investors it is not too late to pick up Apple shares. "Apple remains our top consumer-centric pick," he said.

Looking ahead, he predicted the much-discussed tablet computer Apple fans have been waiting for as well as a redesigned consumer notebook. Shope said investors will be looking "beyond the company's notoriously conservative guidance."

Apple, based in Cupertino, Calif., projected earnings of $1.70 to $1.78 per share for the current quarter. That's well below the average estimate from analysts, who expect $1.91, according to Thomson Reuters.

Texas Instruments (TXN)

FBR Capital keeps market perform; raises estimates, price target

After the close of trading Oct. 19, Texas Instruments reported third-quarter earnings that beat Wall Street forecasts. FBR Capital analyst Craig Berger said on Oct. 20 that he was impressed that the company's revenue is ramping back towards pre-recession levels, suggesting that Texas Instruments is gaining market share. However, Berger doesn't see any meaningful evidence that inventories are building at distribution or at OEM/ODMs, and while shrinking baseband revenues will continue to drag on the company's business somewhat, he could look to get more constructive on the stock given its attractive valuation, depending on fourth-quarter holiday sell-through.

The analyst raised his GAAP EPS estimates for 2009 to $1.10 from $1.04, and for 2010 to $1.80 from $1.64. He also raised his $28.50 price target to $31.

UnitedHealth Group (UNH)

Standard & Poor's Equity Research upgrades to buy from hold; raises estimate UnitedHealth posted better than expected third-quarter results on Oct. 20. S&P Equity analyst Phillip Seligman said that UnitedHealth's operating earnings per share of $0.86, vs. $0.73 one year earlier, beat his estimate by 9 cents. The medical care ratio was below S&P's view, on a favorable reserve adjustment of $190 million that was not in S&P's model. But it still rose on a less favorable member mix, given fewer commercial and more Medicare/Medicaid members, and H1N1 flu costs.

Seligman still sees headwinds for UnitedHealth in 2010 -- some continuing from 2009 -- but he likes the company's conservative reserving, cost controls, drug unit performance, and cash flow. He lifted his 09 EPS estimate by 9 cents to $3.19, but kept his 2010 forecast at $3.10 and his $32 price target price. Seligman noted the decision to upgrade the shares was based mainly on valuation. Family Dollar Stores (FDO)

Credit Suisse upgrades to outperform from neutral

Credit Suisse analyst Michael Exstein upgraded his investment rating on Family Dollar Stores on Oct. 20, saying the discount chain is likely to grow its square footage over the next 5 years and increase profit margins. The company is a good buy for investors, as the stock price doesn't reflect the benefit of that expansion, said Exstein in an Oct. 20 note to investors.

The chain is likely increasing its private-label brands after improving the quality and packaging of many of its products, said Exstein. He also said that Family Dollar is trying to buy inventory more cheaply. Both initiatives would expand the company's profitability.

Family Dollar is also likely to grow its square footage at a rate of about 3% annually for the next three to five years, Exstein added. Meanwhile, he said the stock's price relative to its earnings outlook is cheap historically. Exstein maintained a $34 price target on the shares.

GameStop (GME)

Janney Montgomery Scott downgrades to neutral from buy

GameStop Corp. shares slipped ahead of regular trading Oct. 20 after Janney Montgomery Scott analyst Tony Wible cut the company's stock rating, pointing to a weak near-term outlook for video game sales.

GameStop, the world's largest video game retailer, is suffering from a dearth of hit games and cautious spending by consumers. The Grapevine, Texas, company was forced to cut its full-year profit forecast this summer.

Wible said September video game sales climbed a "disappointing" 5.2% from the same month last year, well below his 13% estimate. He said that raises worries that GameStop will have to rely more on discounted used games to drive traffic to its stores rather than more lucrative new titles.

Wible projects the company is now on track to report a 4% drop in fiscal third-quarter sales, down from his previous estimate of a 3.1% rise.

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