Analyst Picks and Pans: Citigroup, Research in Motion, Sealy

Citigroup (C)Rochdale Securities initiates with buy

Rochdale analyst Richard Bove said on June 19 the U.S. government has made it clear that Citigroup is "too big to fail" as demonstrated by the financial backing it needed to survive despite its failings. Bove said one issue in the "too big to fail" pantheon is that some companies have developed such unique positions that their elimination would cause harm to their customers. Bove believes Citigroup is such an organization.

Despite continuous mismanagement, said Bove, Citigroup retains its position as the only truly international bank in the world; if Citigroup were not here, it would take decades to replace the company. Bove said few companies reach that status.

Bove has a $4 price target on Citigroup shares.Research in Motion (RIMM)Kaufman Bros. keeps hold BMO Capital Markets keeps outperform

Analysts were generally mixed on Research in Motion Ltd.'s fiscal first-quarter results released after the close of trading June 18, calling it a solid quarter but noting that shipments were below expectations and the company is facing increased competition.

The BlackBerry maker posted better-than-expected earnings, and said it is growing its market share among non-corporate customers, but one analyst said on June 19 that competition remains a concern for the company.

Kaufman Bros. analyst Shaw Wu said the quarter's results were solid, helped by cost controls, but light of higher expectations and "may cause some concern." He added that BlackBerry shipments of 7.8 million were "light of expectations of closer to 8 million units."

Keith Bachman, an analyst with BMO Capital Markets, called the quarter "mixed," with revenue roughly in line with expectations. The better-than-expected earnings, he added, were "largely attributable to lower operating expenses."

Bachman said the stock will likely "take a near-term breather based on strong recent stock performance, and also new competitive products from Apple and Palm."Apple Inc. (AAPL) launched a new version of its popular iPhone Friday morning, and RIM's BlackBerry is also facing competition from Palm Inc.'s Pre, which went on sale earlier this month.

"Nevertheless, we continue to like RIM's long-term story, driven by a healthy high-end handset market, new RIM product launches in (the second half of 2009) and margin stability," Bachman wrote.

For the second quarter, RIM forecast earnings of 94 cents to $1.03 per share on revenue of $3.45 billion to $3.7 billion.

Sealy Corp. (ZZ)SunTrust Robinson Humphrey reiterates neutral

SunTrust Robinson Humphrey analyst Keith Hughes applauded Sealy Corp.'s preliminary gross margin and operating income results on June 19, but cautioned that the mattress maker will likely be weighed down by a convertible rights offering for a while.

After the close of trading June 18, Trinity, N.C.-based Sealy said it expects a second-quarter gross profit margin of 40.1% to 41.1% and operating income of $28 million to $30 million. The company anticipates revenue of $294 million to $301 million.

Hughes projected a gross margin of 38.1% and revenue of $283.1 million for the period.

Hughes said in a client note that the mattress maker's gross margin and operating income results "position Sealy to see improvement if volumes can just bottom out."

But Hughes said that the convertible rights offering may be a burden. Last month Sealy gave stockholders transferable subscription rights to buy up to about $177.1 million of its senior secured third lien convertible notes due 2016. The offering is set to expire on July 2.

"Until the company completes a reverse split or if the convertible feature of the bonds is nullified in a few years, Sealy is destined to be a single-digit stock," he said.

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