Stock Picks: Alcoa, CSX, Infosys

Wall Street analysts offer buy, sell, or hold recommendations on stocks in the news on July 13

Alcoa: Citigroup equity analyst Brian Yu reiterated a buy rating and 16 price target on shares of Alcoa (AA), the largest U.S. aluminum producer, on July 13.

After the close of trading on July 12, Alcoa reported second-quarter profit that topped analysts' projections as higher metal prices boosted sales. Earnings from continuing operations were 13¢ a share, exceeding the 11¢ average estimate of 17 analysts surveyed by Bloomberg. Net income of $136 million, or 13¢ a share, compared with a net loss of $454 million, or 47¢, a year earlier, New York-based Alcoa said today in a statement. Sales gained 22 percent to $5.19 billion.

Aluminum for delivery in three months increased 39 percent, on average, in the second quarter, compared with prices a year earlier on the London Metal Exchange.

In a note, Yu said the company's 13¢ earnings per share (EPS) for the second quarter beat his estimate of 10¢. The analyst said Alcoa's results were "relatively clean" vs. its recent history, driven by stronger profits from downstream (i.e., flat-rolled and engineered products) business units that saw a recovery in revenues while cost discipline was maintained.

Yu said upstream (alumina and primary aluminum) profits will be dictated by aluminum prices, which remain weak at 90¢ per pound, suggesting a sequentially lower third quarter; the downstream should continue to benefit from a cyclical rebound and cost initiatives that could potentially offset seasonal trends.

Yu maintained a 2010 EPS estimate of 46¢.

CSX: Standard & Poor's equity analyst Kevin Kirkeby maintained a buy rating and 62 price target on shares of CSX (CSX) on July 13.

After the close of trading on July 12, CSX, the third-largest U.S. railroad by 2009 revenue, reported second-quarter profit that topped analysts' estimates as improved automobile sales led to /an increase in rail traffic.

Net income rose 36 percent to $414 million, or $1.07, from $305 million, or 77¢, a year earlier, Jacksonville (Fla.)-based CSX said in a statement. The average estimate of 25 analysts surveyed by Bloomberg was profit of 97¢ a share. Revenue gained 22 percent to $2.66 billion.

Second-quarter volumes climbed 13 percent from a year earlier, led by a 63 percent gain in automotive shipments, CSX said. The company, which has said it delivered about 30 percent of the light vehicles in North America last year, had an 81 percent increase in revenue from the auto industry.

In a posting on the S&P MarketScope service, Kirkeby said the company's second-quarter EPS of $1.07 exceeded his 92¢ estimate due to wider margins than he had expected. "We believe CSX is experiencing the positive impact of operating leverage as volumes grow faster than costs at this stage of the recovery in freight traffic," he wrote.

Based on the company's better-than expected second quarter results and his view of a generally improving economy, Kirkeby raised an EPS estimate for 2010 to $3.75, from $3.60; he maintained a 2011 estimate of $4.01.

Infosys Technologies: Kaufman Bros. equity analyst Karl Keirstead reaffirmed a buy rating and 72 price target on shares of Infosys Technologies (INFY) on July 13.

On July 13, Infosys led Indian software exporters lower in Mumbai trading after the company reported that profit unexpectedly fell and forecast that billing rates will extend declines.

First-quarter net income fell 2.6 percent from a year earlier, to 14.9 billion rupees ($318 million), Bangalore-based Infosys said today. Profit missed the 15.6 billion rupees average of 25 analyst estimates compiled by Bloomberg.

Chief Financial Officer V. Balakrishnan said on July 13 that the company is cautious about the outlook on Europe and that the drop in billing rates will probably deepen to 2 percent this year. Infosys cut prices to retain and win business from European customers after the euro's 6.3 percent decline against the rupee dragged down the value of sales in the region, which accounts for about 20 percent of Infosys's business.

In a note, Keirstead said the company's revenue growth met or exceeded Wall Street expectations, with Infosys posting constant-currency quarter-over-quarter growth of 6 percent for the third consecutive quarter; the company forecast second-quarter sequential growth of 4 percent to 5 percent and raised its fiscal 2011 dollar-denominated growth guidance from 16-18 percent to 19-21 percent despite the hit from the depreciation of the euro and pound.

"Despite the top-line strength, Infosys posted an EPS beat of 'just' [1¢] relative to the high end of [company] guidance and met Street estimates," Keirstead wrote.

"Especially for growth stocks such as Infosys, we believe that evidence of continued strength in U.S. demand should ultimately trump EPS pressure stemming from currency shifts and accelerated hiring," the analyst wrote.

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