Stock Picks: Google, Morgan Stanley, Visa, MasterCard

Google (GOOG)

Goldman Sachs maintains buy; raises estimares, price target

Goldman analyst James Mitchell said on Oct. 12 that discussions with advertising agencies point to rising spending on Google since June, led by travel, clothing, and home improvement advertisers. He raised his revenue and earnings per share (EPS) estimates for the second half of 2009, 2010, and 2011 by by 2%-4%. Mitchell forecasts 4.4% quarter-over-quarter consolidated gross revenue growth in the third quarter as search executives reported mid- to high single-digit spending growth from the preceding quarter, with stabilizing price per click on a year-over-year basis after four quarters of declines.

The analyst raised his $22.54 2009 EPS estimate to $22.94, his $24.62 2010 forecast to $25.55, and his $28.65 2011 view to $29.72. He also hiked his $560 6-month price target to $585.

Morgan Stanley (MS)

Keefe, Bruyette & Woods maintains outperform; raises estimates, price target

Keefe, Bruyette & Woods analyst Robert Lee raised his earnings expectations for Morgan Stanley on Oct. 12 after revising revenue estimates for the bank's global wealth management joint venture, Morgan Stanley Smith Barney. Lee revised his revenue model for Smith Barney, increasing his market return assumption for the quarter and adjusting the long-term impact of the retail brokerage unit. Increased revenue from that adjustment was partially offset by a slightly lower fee rate and higher expenses, Lee wrote in a research note.

Morgan Stanley owns a 51% stake in Smith Barney, after acquiring it earlier in the year from Citigroup (C). Morgan Stanley will eventually have the option to purchase the remaining portion of the company it does not already own.

Lee now predicts Morgan Stanley will earn 20 cents per share in the third quarter, compared with a previous estimate of 11 cents per share. Lee now expects Morgan Stanley to lose 89 cents per share for the full year, compared with a previous estimate for a loss of $1.14 per share. Lee's 2010 and 2011 profit forecasts were increased. The KBW analyst now expects Morgan Stanley to earn $3.35 per share in 2010 and $3.75 per share in 2011. He had previously forecast earnings of $3.30 per share in 2010 and $3.70 per share in 2011. Lee also raised his price target to $36 from $34.

Visa (V) MasterCard (MC)

Creidt Suisse upgrades both to outperform from neutral; increases price target on both

Increased use of credit and debit cards should translate into improved revenue for payment processors MasterCard and Visa, Credit Suisse analyst Moshe Orenbuch said Oct. 12 as he lifted his ratings on both of the stocks. Orenbuch also increased his price target on MasterCard to $255 from $210. He raised his price target on Visa to $84 from $70.

Improving spending volumes and a general trend toward using plastic instead of cash to pay for goods and services should improve revenue growth in the coming quarters and translate into higher stock prices, Orenbuch wrote in a research note. Credit and debit cards account for about 44% of all payments in the U.S., and that is expected to increase in the coming years, Orenbuch said. Debit card transactions are growing faster than credit purchases amid the economic downturn, which should help Visa more than MasterCard because of its larger network of debit cards, Orenbuch wrote.

Credit and debit card volume growth will expand "several percentage points per year faster than global GDP as plastic continues to take share of global payments from cash and checks," Orenbuch wrote in the note. Visa and MasterCard are the two largest electronic payments processors in the world.

Orenbuch increased his 2010 earnings estimate for MasterCard by 30 cents per share to $12.65 per share. He established a 2011 earnings estimate of $15 per share. He predicts Visa will earn $3.50 per share in 2010. He established a fiscal 2011 earnings estimate of $4.15 per share. Dr. Pepper Snapple Group (DPS)

Deutsche Bank North America downgrades to hold from buy

Deutsche Bank North America analyst Andrew Kieley lowered his rating on Dr. Pepper Snapple Group on Oct. 12, citing the beverage maker's share price. Kieley said the company's shares are within 6% of his $32 price target and has more than doubled since March.

"While shares are still slightly undervalued and we continue to like the long-term fundamentals, we no longer expect as dramatic price appreciation, and a positive earnings outlook is largely discounted," he wrote in a note to clients.

W.W. Grainger (GWW)

Credit Suisse upgrades to outperform from neutral; raises estimates, price target

Credit Suisse analyst Hamzah Mazari upgraded shares of the Lake Forest, Ill., company, which makes industrial and commercial cleaning products, on prospects for strong revenue growth. Mazari cited what he called a "faster top-line growth than the market expects based on our proprietary distribution sales index model."

"Supply chain initiatives, (more products) and market expansion should also drive higher margins over the next couple of years," the analyst added.

He raised his 2010 earnings-per-share estimate to $5.90 from $5.68. He also hiked his target price on the stock to $112 from $85.

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