Stock Picks: Alcoa, Adobe, Broadcom, Zumiez

Alcoa (AA)

Citigroup maintains buy; raises estimates, price target

Citigroup analyst Brian Yu said on Oct. 8 that Alcoa's third-quarter operating earnings of 4 cent per share, reported after the close of trading Oct. 7, topped both his 10 cents loss per share estimate and the 9 cents loss per share consensus forecast of Wall Street analysts.

Yu noted that upside to his estimate came from accelerated overhead procurement cost reductions and an income tax benefit. He continues to anticipate a profit in the fourth quarter as better third-quarter aluminum pricing flows to the company's Alumina business, and cost-cut initiatives advance. The analyst noted that this will be somewhat offset by a seasonal slowdown in the Flat-Rolled and Engineered units.

Yu raised his 2010 earnings estimate from 24 cents per share to 48 cents, and his 2011 earnings view from 60 cents to 80 cents. He boosted his $14 price target to $17.

Adobe Systems (ADBE)

Robert W. Baird upgrades to outperform from neutral; raises price target

Predicting an earnings recovery in the second half of next year and following an upbeat analyst meeting, Robert W. Baird analyst Steven M. Ashley upgraded Adobe Systems on Oct. 8 and boosted his target price on Adobe's shares to $40 from $35. He expects the software maker's earnings to recover thanks to the release of Creative Suite 5 next year.

The Creative Suite software package brings in the bulk of Adobe's revenue. Aimed at professional designers and developers, it includes Photoshop, Flash and Web design software Dreamweaver, among other applications. The most recent version was launched last fall, in the midst of the economic turmoil that dampened demand for it. Analysts generally expect this pent-up demand to drive sales of Creative Suite 5 higher.

Ashley also expects Adobe's acquisition of Omniture Inc. to close as expected and provide a longtime benefit to the San Jose, Calif.-based company.

Broadcom (BRCM)

Robert W. Baird downgrades to neutral from outperform

Saying the fourth could be the "last quarter of good news," Robert W. Baird analyst Tristan Gerra downgraded shares of chip maker Broadcom on Oct. 8. Noting that Broadcom's shares are up 76% year-to-date, Gerra said the stock is trading at a high value compared with similar companies. He kept his target price at $30.

Gerra said he does not believe that the current order strength Broadcom is seeing is sustainable relative to demand and to softness among U.S. telecom carriers. ScanSource (SCSC)

William Blair keeps market perform; raises estimates

William Blair analyst Brian Drab said on Oct. 8 that ScanSource's new first-quarter revenue view is well above its previous view; the midpoint of the new range implies a 10% rise in revenue vs. the fiscal 2009 fourth quarter (ended June) after 13% sequential rise last quarter.

Drab thinks ScanSource's strong results are likely due in part to continued improvements in the company's telecom business, driven by a recovery in sales of Avaya products. He notes ScanSource's guidance doesn't provide details on sales by product line or geographic region.

The analyst raised his first quarter earnings estimate from 41 cents per share to 44 cents. He noted that the company's previous earnings per share view, which was not updated, was $0.39-$0.43. He also raised his fiscal 2010 earnings estimate from $1.72 per share to $1.79 per share.

Zumiez Inc. (ZUMZ)

Roth Capital upgrades to buy from hold; raises estimates, price target

Roth Capital analyst Elizabeth Pierce said on Oct. 8 that September/Back-To-School results for Zumiez bode well for the holiday season, and demonstrate that the company can drive conversion during peak shopping periods. She believes key drivers were effective promotions, and the unique brands and styles that reinforce the authenticity of Zumiez as an action sports retailer.

The analyst believes Zumiez can get back to its peak operating margin of about 11% even on lower sales per square foot given the expense reductions and improved operating efficiencies.

Pierce raised her fiscal 2011 (ending January) earnings estimate from 43 cents per share to 48 cents per share, and set a 70 cents per share estimate for fiscal 2012. She raised her $16 price target to $22.

Gardner Denver (GDI)

KeyBanc upgrades to buy from hold; raises estimates

KeyBanc analyst Jeffrey D. Hammond upgraded Gardner Denver on Oct. 8, saying the maker of pumps and compressors is benefiting from improved margins and cost-cutting.

Hammond initiated a $42 price target, which would represent a 27% premium over its closing price Wednesday of $33.11.

"While industrial markets are still on the front end of a stabilization, we believe current valuation represents a solid entry point based on the long term, structural transformation at GDI," Hammond said in a client note.

Barry L. Pennypacker, who has been president and CEO since January 2008, will achieve his stated target of 14 percent margin expansion in industrial products by 2014, which would add $1.30 per share to $1.60 per share in earnings, Hammond said.

Management also is positioning Gardner Denver to better capture opportunities in its aftermarket business, he said. In addition, Hammond said the company will achieve incremental cost savings of $25 million, largely focused on its industrial products unit.

Hammond increased his 2010 earnings estimate to $2.10 per share from $1.95 per share citing the improving U.S. economy, "signs of stabilization" in Europe and increased confidence in better margins in the company's industrial products business.

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