Stock Picks: Goldman Sachs, eBay, Penn Virginia

Goldman Sachs Group (GS)

Bernstein lifts estimates

Despite a likely end-of-year slowdown in fixed-income trading, Goldman Sachs will top Wall Street expectations by cutting the percentage of sales it sets aside as compensation, Bernstein analyst Brad Hintz said on Nov. 23. Hintz also added that the seasonal slowdown doesn't signal that the bank's ability to profit from a recovery in credit markets has ended.

In a note to investors Monday, Hintz boosted his earnings estimates for 2009, even though sales from trading of fixed income products -- corporate and government bonds, currencies and commodities -- historically have slowed at the end of the year as traders cut risk and banks typically reduce lending.

Fixed-income sales and trading has helped buoy Goldman's results for two straight quarters.

Hintz said that Goldman will likely compensate for the seasonal slowdown by cutting the percentage of sales it sets aside to compensate employees. Over the past year, Goldman has accrued $16.7 billion for employee compensation -- that's 58 percent of pre-tax profit, he said, above 2006 and 2007 levels of 53 percent. He expects that ratio to be 36 percent in the fourth quarter. "This, of course, will substantially enhance bottom-line performance," he said.

Hintz expects Goldman to earn $19.67 per share for the year, up from a prior estimate of $18.88. Goldman is expected to post fourth-quarter results in mid-January.

Ebay (EBAY)

Standard & Poor's Equity Research upgrades to buy from hold

S&P equity analyst Scott Kessler said on Nov. 23 that eBay recently completed the sale of some 70% of Skype for $1.9 billion in cash and a $125 million note. Kessler sees this as good news for eBay, as it can better focus on core operations, redeploy the proceeds to pursue international growth opportunities via organic investment and/or mergers and acquisitions, and move past uncertainties related to now-resolved Skype-related legal matters.

Notwithstanding some recent search challenges on that have been fully addressed, Kessler thinks eBay will perform well this holiday shopping season, and sees the stock as attractively valued. His 12-month price target remains $26.

Penn Virginia Corp. (PVA)

SunTrust Robinson Humphrey upgrades to buy from neutral

SunTrust Robinson Humphrey analyst John Gerdes said on Nov. 23 that Penn Virginia has depreciated about 25% since mid-October (before the Nov. 23 open), underperforming the exploration and production sector by about 15 percentage points, and now appears to present an attractive buying opportunity.

Gerdes said his $25 price target reflects a robust outlook for coal prices (about $80 per ton long-term vs. the $45 current price). He sees Penn Virginia posting a 2009 loss of 54 cents per share, and a loss of 8 cents per share in 2010. Eclipsys Corp. (ECLP)

Jefferies & Co. upgrades to hold from underperform; raises price target

Jefferies & Co. analyst Richard Close raised his rating on medical software company Eclipsys Corp. on Nov. 23, citing a better opinion on the company's prospects after a meeting with management.

The Atlanta-based company makes software for electronic medical records and medical operations, such as billing and cost accounting. The company reported a $3.9 million profit during the third quarter, following two quarters of losses.

Close also hiked his price target to $20 from $13.

"Management provided greater insight into leadership's strategy to enunciate a clear client message, improve product development and implementation operations, and grow new client opportunities while penetrating existing base," he said, in a note to investors. "While early in turnaround process (again) we are encouraged by the direction."

Close said he met with CEO Philip Pead and Chief Financial Officer Chris Perkins. The meeting provided him with "encouragement" that the company can take advantage of federal stimulus funds. Meanwhile, Close said it is the company's technology that is positioning it to take advantage of federal funding to implement electronic records and processes in the health care industry.


Wedbush upgrades to neutral from outperform; lower price target

Wedbush analyst Michael Pachter said on Nov. 23 that he is cutting his $7 target on shares of interactive entertainment software firm THQ to $6, but upgrading the stock as he finds it more attractive at current levels. Pachter said the company's recent financial performance has been volatile (second-quarter earnings per share and revenue were above analyst forecasts, but the company did not raise forward guidance).

The analyst noted that THQ has been pressured by persistent industry sales drops, a cautious retailer environment, and weak consumer spending. But Pachter said a solid fist half of fiscal 2010 and a recent issue of $100 million in convertible notes have addressed bankruptcy concerns. Pachter thinks the company's prospects have much improved. He sees fiscal 2010 (ending March) EPS of 25 cents.

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