Analyst Picks and Pans: General Dynamics, Johnson Controls

General Dynamics (GD)

Collins Stewart upgrades to buy from hold

Collins Stewart analyst James McIlree upgraded shares of General Dynamics on Sept. 28, saying the stock is attractively priced and its Gulfstream private jet business appears to have reached a bottom. McIlree also set a $78 price target.

He called Gulfstream the "key leverage point and it is showing signs of bottoming." The division's top-of-the-line G650 will be unveiled Sept. 29 and McIlree expects upbeat commentary from the company.

Besides the stock being reasonably priced and its Gulfstream operations set for a possible rebound, the Falls Church, Va., company's military contracting prospects are favorable, he said.

"General Dynamics has a diversified portfolio that we think is favorably positioned within the Department of Defense's vision for its future force structure," McIlree said.

The analyst also said General Dynamics' shipbuilding business "has shown strength and we believe could continue to do so."

Johnson Controls (JCI) BorgWarner (BWA)

Wells Fargo maintains outperform on both

Wells Fargo analyst Richard Kwas said Sept. 28 that while he expects automakers to post a steep drop in sales for September, auto suppliers could still post better-than-expected results for the third quarter.

"We believe the U.S. sales recovery will be gradual but gain more steam as 2010 progresses," Kwas said in a note to investors. "We like Johnson Controls headed into its analyst day (Oct. 13). The recent pullback in BorgWarner's shares provides good value for long-term investors, in our opinion."

BorgWarner shares have lost 11% of their value since Sept. 10.

Kwas said he expects a seasonally adjusted annual rate, or SAAR, of 9.8 million vehicles for September, down from 12.5 million in the same month last year. Last month, the SAAR was 14.1 million, largely as a result of a boost from the government's Cash for Clunkers program.

The analyst said he expects all three U.S.-based automakers to post sequential sales declines of at least 29%, with Ford Motor Co. (F) the only automaker expected to post a slight year-over-year increase.

First Midwest Bancorp (FMBI)

Sandler O'Neill upgrades to buy from hold; raises price target

Sandler O'Neill analyst Brad Milsaps said on Sept. 28 that First Midwest's valuation was compelling, as the shares were trading at around 3 times pre-provision earnings, 105% of pro forma tangible book value, and 7 times his normalized earnings power assumption.

Milsaps said the upgrade is not without risks; he noted the possibility of further deterioration in asset quality, a common equity offering, or an impairment charge related to CDOs. That said, the analyst thinks upside potential outweighs downside risk considering the company's pre-provision earnings power, and its potential to accelerate earnings with an FDIC-assisted transaction at some point in the near term. He raised his $8 price target to $13.

Before it's here, it's on the Bloomberg Terminal.