Stock Picks: Emerson, MasterCard, Myriad, Time Warner

Emerson Electric Co.: UBS Securities equity analyst Jason Feldman maintained a neutral rating on shares of Emerson Electric Co. (EMR) on May 5. He raised a price target on the shares to $53 from $49.

On May 4, shares of Emerson, the electrical- products maker seeking to acquire Chloride Group Plc, fell the most in more than a year after second-quarter sales trailed estimates and data showed Chinese manufacturing was slowing.

Revenue in the three months ended March 31 was $5.14 billion, compared with an average estimate of $5.22 billion from 12 analysts surveyed by Bloomberg. Profit excluding some items was 54 cents a share, less than the 55-cent average estimate of 15 analysts.

In a note, Feldman called Emerson's second-quarter margin performance "solid", as operating margins of 15.0% improved 90 basis points over a year earlier and 20 basis points over the preceding quarter. He noted that sales from existing businesses increased by 19% at the Climate Tech unit and 2% at Appliance & Tools, but declined by 6% at Network Power, 13% at Process, and 16% at Industrial Automation.

Feldman said the company noted that order trends excluding currency effects were positive in all segments. "We believe strong order trends bode well for revenue growth in the back half [of fiscal 2010], and particularly in fiscal 2011," he wrote.

The analyst said Emerson raised its earnings per share (EPS) guidance for fiscal 2010 (ending September) to $2.40 to $2.55 from $2.20 to $2.40, compared with the Wall Street consensus expectation of $2.47. The guidance reflects some caution on the part of management regarding the European and U.S. economies, he said.

Feldman raised his EPS estimates for fiscal 2010 to $2.50 from $2.40 and for fiscal 2011 to $3.20 from $3.00.

MasterCard Inc.: Keefe, Bruyette & Woods equity analyst Sanjay Sakhrani reiterated an outperform rating and $313 price target on shares of MasterCard Inc. (MA) on May 5.

MasterCard, the world's second- biggest electronic payments network, posted a first-quarter profit that beat most analysts' estimates on May 4 as consumer spending rebounded and expenses were held in check.

Net income rose 24% to $455 million, or $3.46 per share, from $367.3 million, or $2.80, in the same period a year earlier, the company said in a statement. The average estimate of analysts surveyed by Bloomberg was $3.15. Revenue advanced 13% to $1.3 billion.

In a note, Sakhrani said that MasterCard's reported first-quarter EPS of $3.46 compared with our estimate of $3.25 and the Wall Street consensus estimate of $3.14. He said MasterCard reported "solid" results driven by stronger revenue growth along with lower expenses, primarily in marketing.

While the company "will likely face headwinds as the year progresses" from more difficult comparisons in later 2009, a stronger U.S. dollar, the impact from the loss of a few customers, higher rebates and incentives, and higher levels of marketing expenses relative to the first quarter, Sakhrani said he believes MasterCard can offset the impacts via strong processing volume growth, selective repricing initiatives, and disciplined expense management.

The analyst increased a 2010 EPS estimate to $13.55 from $13.40 to reflect "generally favorable volume trends".

Myriad Genetics Inc.: Morgan Joseph equity analyst Shiv Kapoor maintained a hold rating on shares of Myriad Genetics Inc. (MYGN) on May 5.

Shares of Myriad lost 27% to $17.61 on May 5. The maker of a test for detecting inherited breast cancer forecast 2010 profit of $1.35 a share at most on May 4, trailing the average analyst estimate of $1.49.

In a note, Kapoor said that Myriad's reported EPS of 33 compared to his estimate of 41 cents and the Wall Street consensus projection of 39 cents. He said revenues of $90.8 million were below the Wall Street consensus estimate of $97.8 million and his estimate of $97.8 million.

"Quarter-over-quarter growth of 5% is substantially lower than the over 40% sales growth recorded during the past 3 fiscal years," he wrote.

Kapoor said the company blamed poor macroeconomic conditions and low frequency of physician visits for the weak results. "To us, this is a confirmation that the company's marketing efforts and an improving economic environment do not appear to be benefitting Myriad," he said. "We continue to believe, based on the previous recession, that it may take 2-3 years of economic growth for Myriad's business to regain its growth."

Time Warner Inc.: Standard & Poor's equity analyst Tuna Amobi maintained a buy rating on shares of Time Warner Inc. (TWX) on May 5.

Time Warner, owner of the Warner Bros. film studio and TBS cable-television channel, reported first-quarter profit that beat analysts' estimates on May 5 as movie sales rose and advertising rebounded.

Excluding some items, earnings rose to 61 cents a share, the company said in a statement. Analysts projected 48 cents, the average of 17 estimates compiled by Bloomberg.

In a posting on the S&P MarketScope service, Amobi said that Time Warner's first-quarter EPS excluding items beat his estimate by 12 cents, "unsurprisingly fueled by cable networks' (HBO, TNT, TBS) subscriptions and ads". He said the increase in cable subscriptions "affirm[s] the economic rebound".

Amobi also noted positive results from the company's film studio, including the films Sherlock Holmes, The Blind Side, and Valentine's Day, with its publishing unit "also swinging to modest profits" on restructuring measures.

The analyst said Time Warner affirmed its expectation for 2010 EPS growth at a percentage rate in the mid-teens, which he thinks is "well achievable, if not conservative".

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