Stock Picks: Fairchild, Goldman Sachs, Google

Wall Street analysts offer buy, sell, or hold opinions on stocks in the news on July 16

Fairchild Semiconductor International Inc.: Miller Tabak & Co. equity analyst Brendan Furlong maintained a buy rating and $16 price target on shares of Fairchild Semiconductor (FCS) on July 16.

On July 15, the maker of chips for computers and mobile phones reported second-quarter adjusted earnings of 40 cents a share. Analysts had estimated 31 cents, according to a Bloomberg survey. Second-quarter sales were $409.6 million, vs. analysts' expectation of $399.6 million.

Fairchild's fundamentals "rebounded strongly last year and remain strong in the early part of 2010," Furlong said in a note. "We think the majority of the margin expansion at the company is sustainable as the company has 'mixed out' low-margin products and 'mixed in' newer higher-margin products that have strong growth profiles in coming years," he said.

Furlong said he is "very encouraged" that Fairchild management is remaining disciplined on capital spending, despite its "current tight capacity situation."

"We see the June quarter as a validation of our positive stance on the fundamentals of the company," Furlong said.

Goldman Sachs Group Inc.: Standard & Poor's equity analyst Matthew Albrecht raised a rating on shares of Goldman Sachs Group Inc. (GS) to hold from sell on July 16. He raised a price target on the shares to $162 from $135.

On July 15, Goldman Sachs agreed to pay $550 million and change its business practices to settle U.S. regulatory claims that it misled investors in collateralized debt obligations (CDOs) linked to subprime mortgages.

The penalty is the largest ever levied by the Securities & Exchange Commission against a Wall Street firm, the agency said in a statement announcing the accord. Under the deal, Goldman Sachs acknowledged it made a "mistake" and that marketing materials for the instruments had "incomplete information," the agency said.

Goldman Sachs created and sold the CDOs in 2007, as the U.S. housing market faltered, without disclosing that hedge fund Paulson & Co. helped pick the underlying securities and bet against the vehicles, the SEC said in an Apr. 16 lawsuit. Billionaire John Paulson's firm earned $1 billion on the trade and wasn't accused of wrongdoing.

"We think this action helps to resolve a serious challenge to the firm, although regulatory uncertainties remain," Albrecht said in a posting on the S&P MarketScope service.

The analyst said the new target price of $162 on the shares represented 1.2 times projected book value per share, "still a discount to its historical valuation."

Google Inc.: Signal Hill Capital equity analyst Todd Greenwald maintained a hold rating on shares of Google Inc. (GOOG) on July 16.

After the close of trading July 15, Google, owner of the world's most popular search engine, reported profit that missed estimates as the company ramped up spending to take on social networking sites such as Facebook Inc.

Excluding some items, profit was $6.45 a share in the second quarter, the company said in a statement. Analysts had estimated $6.52, according to a Bloomberg survey. Net income rose 24 percent to $1.84 billion, or $5.71 a share, from $1.49 billion, or $4.66, a year earlier.

Chief Executive Officer Eric Schmidt is hiring staff and increasing the pace of acquisitions to keep from losing business to Facebook, the largest social networking site, and Apple Inc., a competitor in mobile software and advertising. Google's total expenses rose 22 percent to $4.46 billion in the period. The company also plans to raise as much as $3 billion by selling bonds, giving it more money to spend.

In a note, Greenwald said Google reported "another solid quarter, but bottom-line results were short of our and consensus estimates, largely as a result of higher-than-expected operating expenses." Google's earnings per share (EPS) of $6.45 was below his $6.83 estimate.

The analyst noted that operating margin fell from 54.9 percent in the first quarter to 52.5 percent in the second, as research and development spending took up 13.7 percent of revenue, up from 12.4 percent in the first quarter and 12.9 percent a year earlier.

Greenwald lowered a 2010 estimate for EPS to $27.50 from $27.66.

"Given a long-term [earnings] growth rate of 15 percent-20 percent, we think Google is appropriately valued at current levels," the analyst said.

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