Analyst Picks and Pans: ACN, MGM, TSO, PLT

Accenture (ACN)

Stifel Nicolaus downgrades to hold from buy

Thomas Weisel cuts estimates

Deutsche Bank maintains buy

On Mar. 26, Accenture said it earned 63 cents per share, or $411.4 million, in its fiscal second quarter, slightly better than had been expected -- but those earnings were "low quality," boosted by lower tax rates, said Stifel Nicolaus & Co. analyst George Price. He cut his profit estimates as net revenue came in at $5.27 billion, far below Wall Street estimates of $5.53 billion and the company's own guidance, from last December, of $5.45 billion to $5.65 billion.

"Management now (has a) credibility wall to climb," Price wrote in a note to investors, after it said in December that "it would take a 'natural disaster' for 2009 results to be at or below the low end of (its) prior guidance."

Investors will likely look askance, he said, at the company's current outlook of sales of $5.1 billion to $5.3 billion in the current quarter. Analysts, meanwhile, expected revenue of $5.77 billion. Price cut his earnings-per-share estimate for fiscal 2009, ending in August, to $2.81 from $2.64.

"While we anticipated some incremental weakness in consulting revenue, the pace and magnitude of the decline eliminates" any positive impact from the company's cost-savings initiatives, said Thomas Weisel analyst David Grossman. He also cut his 2009 and 2010 earnings-per-share estimates, to $2.63 from $2.82 and to $2.80 from $3.07, respectively.

On the other hand, Deutsche Bank analysts maintained their buy rating despite the "rough start" to the year, citing the company's strong cash flow, pipeline of projects and geographic reach. The company is holding up relatively well in a tough environment, Deutsche Bank said.

MGM Mirage (MGM)

BMO Capital Markets downgrades to market perform-speculative from outperform

Acording to press reports Mar. 27, the $8.6 billion CityCenter project in Las Vegas, in which MGM Grand is a partner, is mulling a possible bankruptcy protection filing because it may not be able to pay $220 million that is due Friday. Earlier this week MGM's CityCenter partner, Dubai World, sued over the project, which is targeted to open later this year. The developer's lawsuit claimed MGM's statements about its financial condition put the project at risk.

MGM Mirage is saddled with more than $13 billion in debt. Last week, the company was able to get a bit of a reprieve, winning a waiver on some debt terms that allows it until May 15 to fix its finances.

But Jeffrey Logsdon of BMO Capital Markets said in client note that Dubai World's lawsuit, combined with the increased likelihood that MGM will need to try to come up with new credit agreements so it does not default on existing ones, shifts the casino operator's stock "to a work-out situation that could take longer to solve and result in a more dilutive solution." Logsdon slashed the company's price target to $3 from $10.

Tesoro Corp. (TSO)

Caris downgrades to below average from average

Caris analyst Ann Kohler wrote in a Mar. 27 note that while Tesoro's refining margins started the first quarter at robust levels thanks to planned and unplanned turnaround activity on West Coast, margins collapsed in March when refiners brought their plants back on-line. The analyst cut the firm's $0.44 first-quarter earnings-per-share estimate on Tesoro to $0.30, reflecting refinery throughput of 525,000 barrels per day and gross margin of $12 per barrel vs. his previous estimates of 530,000 and $12.50, respectively.

Kohler also sees the company's retail division posting a $9 million loss vs. profit of $9 million before. For 2009, cut the $1.45 EPS estimate on Tesoro to $1.25. Kohler maintained the $12 price target.

Plantronics (PLT)

Morgan Keegan upgrades to outperform from market perform

Headset maker Plantronics announced that it will shutter a manufacturing plant in China and cut almost 700 jobs. In a Mar. 27 client note, Morgan Keegan analyst Tavis C. McCourt said he thinks the company's management is working to improve Plantronics' cost structure and he is increasingly confident that its profitability and cash glow generation will improve in upcoming quarters.

The company expects that these changes, combined with restructuring moves it announced in January that included layoffs, salary reductions and other cuts, will lower its operating expenses to $195 million in fiscal 2010. That compares with projected operating expenses of about $250 million for the current fiscal year, based on expenses recorded in the first half of the year.

McCourt lowered his estimate for Plantronics' fiscal fourth quarter, but raised his estimate for fiscal 2010 to $0.75 per share from $0.35 per share. Excluding items, he expects profit of $1.07 per share, up from a previous estimate of $0.68 per share.