Analyst Picks and Pans: E*Trade, Discover Financial, DreamWorks
E*Trade Financial (ETFC) Citi Investment Research upgrades to buy from hold
Citi Investment Research analyst Keith F. Walsh upgraded E*Trade Financial to buy from hold, citing a stronger capital position and other improvements. He also increased his share price target to $2.30 from $1.50.
In late August, the company completed a $1.74 billion debt exchange to bolster its capital position as investments related to real estate soured. "Recent capital actions have allayed concerns," Walsh wrote in a note to clients.
Walsh also said E-Trade's loan loss trends have improved, with his model implying higher rates of provisioning over the next 10 quarters. In addition, the company's core franchise remains healthy, with a 4.5% increase in new accounts in the first half of 2009, he said.
Walsh reduced his 2009 loss estimate to 43 cents per share from 52 cents per share and cut his loss estimate for next year to 9 cents per share from 15 cents per share.
Discover Financial Services (DFS) Fox-Pitt Kelton upgrades
Shares of Discover Financial Services have room to rise, said Fox-Pitt Kelton analyst Bill Carcache on Monday, upgrading the credit-card issuer to its highest rating.
Charge-offs (loans that are written off as not being repaid) may rise into the first half of next year, but Carcache said that he feels "comfortable" owning the stock "in an environment where strong signs of economic recovery in many areas are tempered by weakness in others," he wrote in a note.
Carache boosted his price target on the stock to $19 from $10. Shares closed at $14.71 on Friday.
Moreover, a change in accounting rules starting in the first quarter of 2010 will "disproportionately" benefit credit-card lenders' earnings as credit conditions recover, Carcache said.
Carcache raised his estimates for the year to a loss of 45 cents per share from a loss of 78 cents per share. Analysts polled by Thomson Reuters expect a loss of 78 cents per share for the year.
DreamWorks Animation SKG (DWA) William Blair upgrades to outperform from market perform
William Blair & Co. analyst Ralph Schackart upgraded shares of DreamWorks Animation SKG to outperform from market perform on Monday, offering an upbeat take on the studio's slate of films and the chances for a takeover bid. He said in a note that "business trends appear to be solid."
Schackart expressed confidence in the studio's upcoming releases after an investor meeting last week with CEO Jeffrey Katzenberg. "While we admit we cannot predict ultimate consumer reception, we came away from the preview impressed with DreamWorks' upcoming content," he said, singling out "Shrek Forever After," the fourth in the Shrek franchise.
Schackart also pointed to the company's aggressive push into 3-D films. DreamWorks has decided to release all of its new titles in the new format, which Schackart said boosts development costs by 10% but has the potential to grow box office gross returns by 30% as more 3-D screens become available.
Finally, The Walt Disney Co.'s (DIS) $4 billion bid for Marvel Entertainment (MVL), with its catalog of superhero characters, "puts a floor on DreamWorks Animation shares," Schackart said.
He estimates that based on what Disney is willing to pay for Marvel, a bid for DreamWorks could amount to roughly $50 per share. On Friday, the stock settled at $35.29.