Analyst Picks and Pans: Dell, J.Crew, Williams-Sonoma

Dell (DELL) Needham raises price target, keeps buy

Needham analyst Richard Kugele said Dell's $0.25 second quarter EPS (excluding items) beat his $0.24 estimate. He cited strength in consumer and public sector, but says the most surprising element was gross margin, reaching 18.3%, vs. Street's 17.6% forecast.

Despite the run up in Dell stock, essential elements of the next technology growth cycle are clearly in place, Kugele said. He sees Dell, in particular, as well-positioned to benefit from a recovery in consumer PC purchases, continued strong government spending and a pending corporate refresh cycle sparked by Windows 7.

Kugele sees Dell's EPS at $1.09 for fiscal year 2010 (January), and raised $1.33 estimate for fiscal year 2011 to $1.34.

He raised his $16 price target to $20, and kept a buy opinion.

J.Crew Group (JCG) Citigroup upgrades to buy from hold, Needham raises to hold from underperform

Citigroup upgraded J.Crew Group to buy from hold. Citigroup analyst Kimberly Greenberger said the retailer's $0.29 second quarter EPS was well above the $0.15 consensus and her $0.14 estimates.

Greenberger sees accelerating EPS growth given the stabilizing retail environment, improving product, easier comps, and more disciplined inventory management driving strong second half merchandise margin gains.

While she acknowledges J.Crew stock already discounts a lot of good news, the significant surprise in second quarter gross margin gives her increasing confidence in its ability to deliver peak margins over the next two years.

Greenberger raised EPS forecast from $0.99 for fiscal year 2010 (January) to $1.30, and $1.43 for fiscal year 2011 to $1.75. She also boosted her $24 price target to $40.

Needham raised its rating on J.Crew to hold from underperform. Needham analyst Christine Chen said better-than-expected margins and clean inventories lead her to believe fundamentals will continue to improve, particularly as same-store sales, margin comps are both significantly easier in the second half.

Chen also raised her earnings forecasts for fiscal years 2010 and 2011. However, she notes at approximately 22 times her fiscal year 2011 EPS estimate, JCG shares are trading at a significant premium to about 14.7 times for the group average and above the company's long-term organic growth rate of 15%-20%, which she sees as a fair valuation.

Williams-Sonoma (WSM) Goldman upgrades to buy from neutral

Williams-Sonoma shares rose Friday after a Goldman Sachs analyst upgraded the stock to buy from neutral and said the kitchenware retailer's earning potential has been unleashed.

Even though it reported on Wednesday that second-quarter profit fell, Williams-Sonoma still beat analyst expectations, reporting an adjusted per-share profit of 5 cents per share when Wall Street had expected a loss of 9 cents per share.

Goldman Sachs analyst Matthew Fassler said his improved outlook was based on the strength of profit margins on merchandise and follow-through on cost management. "Tight cost controls, lean inventory and share merchandise margin improvement off a depressed base combine to drive superior earnings visibility and much operating leverage on any sales growth," the analyst wrote in a research report.

Fassler raised the firm's 2009 profit estimate to 43 cents from 13 cents. Fassler raised Goldman's 2010 profit prediction to 72 cents per share from 45 cents, and its 2011 prediction to 98 cents per share from 60 cents.

Analysts polled by Thomson Reuters expect profit of 22 cents per share in the fiscal years that ends in January 2010 and they expect 49 cents per share for the year ended in January 2011.

Fassler also raised his price target on the stock to $21 from $13.

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