Analyst Picks and Pans: Wal-Mart, Bank of America, Yahoo

Wal-Mart (WMT)Goldman Sachs downgrades to neutral from buy

Goldman Sachs analyst Adrianne Shapira said on June 15 she sees few near-term catalysts that could drive the share price higher. The firm removed the world's biggest retailer from its Americas Buy List.

Shapira said Wal-Mart's profits have grown over the past year to 18 months as the economic conditions have "played to its strengths (value, price leadership), combined with impressive internal execution."

"While both factors remain in place, we see limited opportunity for the company to generate the same rates of improvement seen in prior quarters going forward," the analyst wrote. "Return on investment appears to be plateauing, which could stymie stock outperformance in the near term."

Shapira also said to expect investors to move into retailers who are "less staple-like names to take advantage of moderating declines in discretionary sales."Bank of America Corp. (BAC)Rochdale Securities raises price target

Rochdale Securities analyst Richard Bove cited growing investor confidence in Bank of America and a change in how they view bank stocks. Bove increased his price target on the Charlotte, N.C.-based bank to $19 from $14.

In a research note published June 13, Bove said investors are regaining confidence in the bank, which was among the hardest hit by the credit crisis.

Bove also said that investors are changing how they value banks as the worst of the credit crisis appears to be over. Last fall and earlier this year, banks were being priced based on a dire, worst-case scenario that they may be liquidated amid a complete collapse in the sector, Bove said. With those fears subsiding, investors are now pricing bank stocks based on more normalized earnings, he said.

Growing confidence in the bank and a return to more normalized earnings is likely to push up the multiple at which Bank of America shares trade, Bove said. Despite the growth in confidence, Bove said the bank still faces steep loan losses amid the ongoing recession. Nearly all banks have faced mounting loan losses for more than a year as more customers fail to repay debt.

Bove said Bank of America could set aside $46 billion for loan-loss provisions during 2009. Last month, the government said Bank of America needed to build an extra $33.9 billion cushion to help protect against potential additional losses if the economy significantly worsens.

Bank of America has already received $45 billion in funds as part of the government's banking bailout program. It also has come under heavy scrutiny for its acquisition of investment bank Merrill Lynch & Co.

Merrill, though, might provide one of the few bright spots for Bank of America when it reports its second-quarter results, Bove wrote in the note. Both Merrill and Countrywide Financial, which Bank of America acquired last year, are likely to provide the bulk of the bank's positive results in the quarter as the bank faces ongoing problems in its core businesses, he said.Yahoo Inc. (YHOO)Citi Investment Research upgrades to buy from hold

Citi Investment Research analyst Mark Mahaney Yahoo Inc.'s stock is trading below the company's value given its stabilizing market share and improved management.

Mahaney also increased his share price target to $21 from $15.

Mahaney said that despite a 34% rise in Yahoo's share price year-to-date, the company has still underperformed big Internet and media stocks since the market began climbing from March lows. He said the lag is unjustified given Yahoo's share of search queries, and online advertising has stabilized over the past few quarters.

Mahaney also pointed to a more focused management team. Carol Bartz took the job of chief executive in January and last week hired Tim Morse from Altera Corp. to serve as the Sunnyvale, Calif.-based company's chief financial officer.

"Our view at the time of her hire was that CEO Bartz brought the necessary organizational skills and experience to turn around Yahoo," he said. "Based on our checks, Bartz's work force reductions, organizational realignments, and CFO selection have all added to improved management focus.

"Although we view the likelihood of a major transaction as unlikely near-term, we continue to view (Yahoo) as the only logical long-term acquisition target for any company seeking scale in Internet advertising," the analyst added.

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