Picks of the Week: Wal-Mart, Hewlett-Packard, McDonald's

Nov. 13 Juniper Networks (”JNPR”)

Oppenheimer upgrades to outperform from perform

Oppenheimer analyst Ittai Kidron upgraded shares of Juniper Networks on Nov. 13, saying the company is poised to benefit from a recovery in spending by telecom carriers in 2010. Kidron established a price target of $31 on the shares.

In addition to the carrier spending recovery, Kidron expects data center consolidation and virtualization to “open the door for Juniper” to expand its presence in the enterprise, or corporate, market and gain market share. Virtualization technology helps save companies money by allowing one computer to act as several machines.

Juniper’s shares had retreated somewhat on Nov. 12 after Hewlett-Packard (”HPQ”) said it would buy 3Com (”COMS”), leaving Juniper out of a consolidation move in the networking equipment market. But Kidron said Friday while HP is a missed opportunity when it comes to manufacturers, IBM (”IBM”) and Dell (”DELL”) offer “material,” multiple-year opportunities for Juniper to outpace expectations. He called the company an attractive long-term holding.

”Goodyear (”GT”)

Goldman Sachs upgrades to buy from neutral; raises estimates, price target

Goldman analyst Patrick Archambault said on Nov. 13 that Goodyear shares fell 20% since third-quarter results were released Oct. 28, based on weak fourth-quarter guidance. While he was surprised by the fourth-quarter outlook, Archambault said the shortfall was largely driven by the transitory accounting impact of production cuts, which doesn’t affect his long-term outlook.

The analyst expects to see big earnings per share (EPS) improvement after the fourth quarter due to increased consumer tire demand, improved fixed cost absorption benefits, and cost reductions from better manufacturing flexibility afforded by the company’s new contract with the United Steel Workers. He raised his 95 cents 2010 EPS estimate to $1.05 and his $1.77 EPS forecast for 2011 to $1.88; he also hiked his $17 six-month price target to $19.

Nov. 12

Wal-Mart (WMT)

Standard & Poor's Equity Research reiterates strong buy; raises estimate

S&P equity analyst Joseph Agnese said on Nov.12 that Wal-Mart's October-quarter EPS of 84 cents, vs. 77 cents EPS one year earlier, is 3 cents above our estimate. Agnese said Wal-Mart's results benefited from increased store productivity and improved inventory management, despite a 0.4% decline in comparable-store sales excluding fuel, below his 1.0% estimate. He expects the company to aggressively price offerings this holiday season in an effort to drive sales growth by utilizing benefits from cost-reduction initiatives.

Due to the slower than expected comparable-store sales growth, Agnese raised his our fiscal 2010 (ending January) EPS estimate only one cent to $3.61 and kept his 12-month price target of $62.

Hewlett-Packard (HPQ)

Kaufman Bros. maintains buy; raises estimates, price target

After the close of trading Nov. 11, HP announced its intent to acquire 3Com for $2.7 billion. In addition, it preannounced upside for both its October and January quarters. On Nov. 12, Kaufman analyst Shaw Wu said he was "somewhat surprised" that 3Com was the networking company HP chose to acquire. "Juniper (JNPR) is viewed as a prized asset and No. 2 to Cisco (CSCO) but its market capitalization at $13 billion and likely acquisition premium are likely a bit daunting, he said in a note to clients. He believes the 3Com deal is a relatively low-risk, "bolt-on" acquisition.

Wu also said HP's preannounced upside for both the October and January quarters is fairly consistent with his recent industry and supply chain checks and potential for better-than-seasonal trends. For the October quarter, he is now modeling $30.8 billion in revenue and $1.14 in earnings per share (EPS), up from prior forecasts of $29.7 billion and $1.11, respectively. For fiscal 2010, he expects $118.3 billion in revenue and $4.35 in EPS (up from $116.6 billion and $4.30). His new estimates do not include 3Com.

Wu raised his 12-month price target on HP to $57 from $54.

Nov. 11

Adobe Systems (ADBE)

Jefferies & Co. raises target price

Shares of Adobe Systems should have more room to climb following recently announced job cuts, Jefferies & Co. analyst Ross MacMillan said Nov. 11. Adobe, best known for its Photoshop, Flash and Acrobat graphics and publishing software, said afte the close of trading Nov. 10 it will cut 680 full-time positions to align costs with its fiscal 2010 budget. The cuts represent about 9% of its work force.

MacMillan estimates the savings will add about 15 cents to 20 cents to Adobe's full-year adjusted earnings per share. He bumped his price target for the company's stock up to $40 from $37.

Though he called the jobs announcement a surprise, MacMillan said he expects additional cuts at Omniture Inc., a software company headquartered in San Jose, Calif., that Adobe bought in October. Adobe, also based in San Jose, has already cut about 108 jobs at Omniture, or 9 percent of Omniture's work force.

The latest cuts will happen at its own operations, Adobe said. The cuts come almost a year after Adobe slashed 600 jobs, or 8 percent of its workers, because of slowing sales.

Logitech International (LOGI)

Standard & Poor's Equity Research reiterates hold

Logitech, a maker of peripheral equipment for PCs, said on Nov. 11 that it had agreed to acquire privately held LifeSize Communications of Austin (Tex.) for $405 million in cash. S&P equity analyst Thomas Smith said in a Nov. 11 note that the deal, if completed as planned in December, would add high-definition video communication capabilities to Logitech's offerings. In Smith's view, it would mark a move to a faster-paced adjacent market from the webcam market where Logitech is active.

Smith maintained his earnings per share (EPS) estimates of 29 cents for fiscal 2010 (ending March), and $1.00 for fiscal 2011. He kept his 12-month price target of $20. Nov. 10

Oracle (ORCL) Standard & Poor's Equity Research Services maintains hold

S&P equity analyst Zaineb Bokhari said in a Nov. 10 note that as expected, European regulators issued an objection to Oracle's proposed acquisition of Sun Microsystems (JAVA), citing the potential for reduced competition in the database market if Oracle gains open source database provider MySQL (owned by Sun). Bokhari noted that the U.S. Department of Justice reiterated its clearance of the deal. The analyst thinks Oracle and MySQL compete at different ends of the database market and is not convinced that Oracle's ownership will limit competition.

Bokhari also thinks MySQL will expand Oracle's market reach, but "judging by current sales, not by much initially."

Priceline.com (PCLN) RBC Capital rates outperform; raises estimates, price target

RBC Capital analyst Ross Sandler said on Nov. 10 that Priceline reported significant upside to his third-quarter estimates. He said the outperformance was broad-based, with hotel room nights accelerating to a year-over-year increase of 56%, while air tickets were up 31%. Sandler noted that there are few Internet companies in his coverage universe as large as Priceline experiencing this kind of volume acceleration at these growth rates.

The analyst also said his thesis for Priceline is based on industry-high exposure to the higher-margin hotel segment and faster growth in international regions continuing to drive above-average growth. He rised his $7.53 2009 pro forma EPS estimate to $8.21, his $9.21 forecast for 2010 to $10.04, and his $235 price target to $260.

Nov. 9

McDonald's (MCD)

Standard & Poor's Equity Research reiterates stong buy; raises estimates

S&P equity analyst Mark Basham said on Nov. 9 than McDonald's October U.S. comparable-store sales ("comps") were flat, in line with earlier management comments suggesting U.S. comps would be flat to down 1%. He noted that Europe and APMEA (Asia Pacific, Middle East & Africa) comps were both strong, up 6.4% and 4.7%, respectively; constant currency total sales were up 8.6% and 8.1%. Moreover, including effects of weaker dollar than a year ago, systemwide sales rose 16% in Europe and 21% in APMEA, Basham said.

The analyst said he had not previously incorporated a weak dollar benefit into his fourth quarter earnings per share (EPS) estimate, which management earlier said may be as much as 6 cents, but he raised this fourth-quarter and full-year 2009 estimates by 5 cents each to $1.05 and $4.05.

Northrop Grumman (NOC)

Jefferies & Co. upgrades to buy from hold; raises price target

Northrop Grumman said on Nov. 8 it was selling its advisory services unit TASC Inc. to private equity firm General Atlantic LLC and affiliates of Kohlberg Kravis Roberts & Co. for $1.65 billion in cash to comply with the government's "conflict of interest standards." Northrop said it will use the proceeds for a $1.1 billion increase in its stock buyback program.

The transaction shows Northrop Grumman's "understanding of and a capability to find value for shareholders in a changing market for defense-oriented suppliers," Jefferies & Co. analyst Howard Rubel wrote in a note to investors on Nov. 9. "Changes in procurement law almost required this sale."

He upgraded the company's shares, commending the company for returning the deal's gains to shareholders and what he said was a "reasonable" price for the TASC unit. Rubel also boosted his price target on the stock to $62 from $55.

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