Analyst Picks and Pans: Best Buy, Harley-Davidson, CardioNet

Best Buy Co. (BBY)Oppenheimer upgrades to outperform from perform

Oppenheimer analyst Brian Nagel said on July 13 that a recent drop in Best Buy's share price had left it undervalued.

"We look upon the concerns that have dogged shares lately as largely overblown and believe the market has been far too quick to dismiss the potential benefits for (Best Buy) from Circuit City's demise," Nagel told investors in a research report.

Circuit City liquidated its 567 stores in March and went out of business, leaving the bigger Best Buy to try to grab more market share.

"We by no means view it as easy going for Best Buy from here," Nagel said.

Best Buy has struggled with sluggish sales as shoppers continue to limit big purchases and Wal-Mart steps up competition.

Since early June, Best Buy shares have fallen nearly 20%, and closed on July 10 at $32.77.

Nagel said the potential upside of owning the shares outweigh the risks.Harley-Davidson Inc. (HOG)RBC Capital Markets cuts sales estimates

RBC analyst Edward Aaron said on July 13 sentiment on Harley is "very negative" on weaker second-quarter sales, which Aaron estimates will fall 25% to 30%, following a 10% first-quarter decline.

"While Harley's inventory issues are not quite as bad as other areas of recreational products, dealer inventory levels are clearly too high heading into the model-year changeover," wrote Aaron in a research note.

Harley is also expected to announce production cuts this week when it reports second-quarter results. Aaron said that Harley's high fixed-cost structure is also problematic, but restructuring efforts at its York, Penn., plant has the potential to restore investor confidence.

"In the interim, extremely weak demand and downward estimate revisions leave the stock vulnerable, in our view," he wrote.

Aaron, who rates the shares sector perform, cut his price target to $16 per share from $18 per share.

CardioNet Inc. (BEAT)Jefferies & Co. cuts price target, reaffirms underperform

Shares of wireless heart-monitoring device maker CardioNet Inc. plunged in premarket trading July 13 after the company said it faces Medicare reimbursement cuts, forcing it to withdraw prior financial guidance.

The Conshohocken, Pa.-based company said Highmark Medicare Services will adjust its reimbursement rate for MCOT heart-monitoring devices to $754 per service, down from more than $1,100 per service.

"CardioNet strongly believes that this reduction is unjustified and will immediately pursue with Highmark and CMS (Medicare) a methodology that appropriately values MCOT technology and related services," said CardioNet Chairman, President, and CEO Randy Thurman in a statement.

Earlier this month, CardioNet cut its outlook for 2009 because of lower-than-expected reimbursement rates. At the time, it set adjusted profit guidance of 30 cents to 35 cents per share and $156 million to $160 million in revenue. That guidance is now withdrawn.

Jefferies & Co. analyst Dr. Joshua Jennings reaffirmed an underperform rating and slashed his price target on July 13 to $5 from $17 Monday, citing the reimbursement problems.

"Although CardioNet is the leader in mobile cardiac outpatient telemetry (MCOT), Highmark's decision to reduce reimbursement will drastically impact the aggressive growth trajectory and profitability targets previously set by CardioNet management and (Wall) Street," he said in a note to investors.

The company may need to restructure following the reimbursement cuts from Highmark, he said, adding that commercial payers will likely follow Medicare's lead and cut their reimbursement rates.

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