Analyst Picks and Pans: Yahoo, PHH, Danaher

Yahoo Inc. (YHOO)Thomas Weisel upgrades to market Weight from underweight

Thomas Weisel analyst Christa Quarles upgraded Yahoo on July 10 in light of coming organizational changes that could make the Internet-search giant more efficient and competitive in its product offerings.

Quarles said that while she still has reservations about some of the longer-term issues surrounding Yahoo, changes in company structure and the stock's recent underperformance could serve to boost shares in the near term.

Quarles also raised her 12-month price target to $16 from $11.

The analyst raised her 2009 earnings estimate excluding one-time items to 37 cents per share from 35 cents, but shaved her revenue forecast to $4.78 billion from $4.82 billion. For 2010, her pro forma earnings estimate rises to 45 cents per share from 41 cents and revenue falls to $4.97 billion from $5.04 billion.

While noting that Microsoft Corp. still expressed interest in acquiring Yahoo, the analyst believes that a combination is increasingly unlikely given that Yahoo's core search business has shown no signs of eroding. As such, Microsoft would have to put in a higher buyout bid for Yahoo to accept.

Quarles said there has been talk of an advertising rebound, but she believes the picture remains cloudy: "We could yet experience several false starts."

Yahoo wants to create a "wow" experience with their finance, email, news, sports and entertainment products, but it's still not clear how they can pull it off, the analyst said.

PHH Corp. (PHH)FBR Capital Markets upgrades to outperform from market perform

Margins in PHH Corp.'s mortgage business are improving, and new company management looks promising, FBR Capital Markets analyst Paul Miller said on July 10, upgrading its investment rating on the mortgage originator and vehicle fleet manager.

Miller said fewer competitors in the mortgage origination business has led to big quarter-over-quarter increases in PHH's gain-on-sale margins on loans. He sees that continuing for the rest of the year, and raised his 2009 earnings estimate for the company to 80 cents per share from 25 cents per share.

However, dropping loan origination volumes will partially offset those gains, Miller said, as refinancings slow due to higher interest rates.

Miller also said that the company's new acting CEO and president, George Kilroy, and new chairman, James Egan, along with two other new board members will "focus on creating shareholder value."

Miller has a target price of $23 on the stock.

Danaher Corp. (DHR)Deutsche Bank upgrades to buy from hold

Lower growth spelled trouble for Danaher Corp. in the second quarter, but the manufacturer of bar code readers, medical products and hand tools should see increased profit next year, Deutsche Bank analyst Nigel Coe said on July 10.

The second quarter, which Danaher is scheduled to report July 23, "will likely be tougher than expected," Coe said in a note to investors.

Still, he sees a "clear path" to earnings growth in 2010 and the potential for a significant increase in profit and revenue from mergers and acquisitions through 2011, he said.

The second quarter will be "substantially worse" than the first quarter with growth down 14 percent, and this will put more pressure on earnings before income taxes, he said.

Danaher is likely to make its guidance range, he added. In April, Danaher said it expects earnings in the second quarter to be between 85 cents and 95 cents per share. For 2009, the company said it expects earnings to be between $3.30 and $3.70 per share, down from previous guidance of between $3.70 per share and $4.10 per share.

Coe said he remains comfortable with the fiscal year, outlook, "albeit at the low end" of the range.

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