Analyst Picks and Pans: General Electric, DiamondRock, Whitney Holding, Pacer
General Electric (GE)
JP Morgan upgrades to overweight from neutral
JP Morgan analyst Stephen Tusa raised his rating for GE shares to overweight from neutral, arguing investors have already digested most problems with the conglomerate's lending arm and that any shred of good news could end up being a big boost to GE's stock. He also raised his price target to $17 from $12.
Tusa noted that fear still lingers over the health of GE Capital, especially on issues like provisions for losses, rising costs of funding and uncertainty over whether a proposed government-led overhaul of the financial sector will affect the company. But he also wrote that GE's estimates for GE Capital's losses look "reasonable" and that it could soon move past some of its major financial challenges.
"We believe investor sentiment on GE Capital is near an inflection point, as downside risk looks to be contained and risks appear skewed to the upside," Tusa wrote.
The analyst said that means even something that with a potential negative impact, such as GE looking to raise $10 billion despite statements that they won't need new outside capital, could end up helping GE shares.
"Our view is that a capital raise, should it prove necessary, could actually be a positive for the stock...as it would remove lingering concerns and shift investor focus toward earnings potential," Tusa wrote.
Signs of some recovery at GE's NBC Universal entertainment unit could also raise the value of the unit to around $30 billion to $35 billion if GE were to shop it around to potential buyers, he said.
DiamondRock Hospitality (DRH), Host Hotels & Resorts (HST), LaSalle Hotel Properties (LHO)
Stifel Nicolaus upgrades to buy from hold
Stifel Nicolaus analyst Rod Petrik raised his ratings on DiamondRock Hospitality Co., Host Hotels & Resorts Inc. and LaSalle Hotel Properties shares to buy from hold. He said factors for the hotel real estate investment trusts include stabilizing occupancy, improving liquidity and strong balance sheets.
Petrik said DiamondRock has a strong liquidity position, with $52 million in unrestricted cash. He also said demand is stabilizing and supply is limited. "Although occupancy is still low, we believe the rate of decline has decelerated," Petrik wrote in a note Tuesday.
Furthermore, Host Hotels & Resorts is sitting on at least $1.8 billion in liquidity, Petrik said, which includes $1.2 billion in cash.
LaSalle, meanwhile, has a unique portfolio with a significant number of boutique and independent hotels, which Petrik said are holding up better than their branded competitors.
Looking ahead, Petrik said the opportunity to buy distressed hotel assets may be a year away, but that stronger lodging REITS like these companies will have access to capital first.
Whitney Holding (WTNY)
SunTrust Robinson Humphrey upgrades to buy from neutral
SunTrust Robinson Humphrey analyst Jennifer Demba upgraded shares of regional bank Whitney Holding to buy from neutral and set a $14.50 price target, based on earnings potential once the financial sector fully recovers.
In a research note, Demba said that while New Orleans-based Whitney is likely to post losses in 2009 and 2010, its low cost of funding operations will provide upside once problem loans are worked out. The bank also has enough reserves to cover any additional loan losses without having to raise additional money, she wrote.
Nearly all banks have struggled with mounting loan losses during the credit crisis and recession. The bulk of Whitney's loan problems have come from its operations in Florida, which was among the hardest hit states by the downturn in the housing and real estate markets.
Once the bank's loan-losses stabilize, Demba said normalized earnings should range between 89 cents and $1.52 per share, with a base case for earnings of $1.20 per share.
Despite the upgrade, Demba increased her loss estimates for 2009 and 2010. Demba now expects Whitney to lose $1.39 per share in 2009, compared with a previous loss estimate of $1.29 per share.
Demba expects Whitney to lose $90 cents per share in 2010. She previously estimated a loss of 71 cents per share.
Pacer International (PACR)
Baird upgrades to neutral from underperform
Baird analyst Jon A. Langenfeld upgraded Pacer shares to neutral from underperform, and raised his price target to $4 from $3. He said the freight and logistics company is burning less cash and seeing stabilizing retail volumes, while a new agreement with its lenders should provide it with sufficient liquidity.
Langenfeld said the company's cash burn slowed in the second quarter to $2 million from $27 million the previous year. Meanwhile, domestic retail volumes rose during the same period.
In addition, last month Pacer struck a new deal with its lenders to provide an amended credit facility of up to $125 million. The agreement should provide "ample near-term liquidity," Langenfeld said in a note.