Stock Picks: BofA, Aeropostale, tw telecom

Bank of America Corp. (BAC)

Standard & Poor's Equity Research maintains strong buy

S&P equity analyst Stuart Plesser said in a Dec. 3 note that he thinks BofA's plan to repay $45 billion of TARP capital not only reflects the government's belief in the financial stability of the company, but "also should help ease [its] ongoing search for a replacement for departing CEO Ken Lewis".

In order to repay TARP, notes Plesser, BofA will need to raise $18.8 billion in an equity offering and use its current liquidity plus the shedding of roughly $4 billion of assets to pay the balance. "We think the positives of removing the company from government control outweigh the roughly 10% in share dilution," Plesser said.

Aeropostale Inc. (ARO)

UBS rates neutral; raises estimates, lowers price target

In a Dec. 3 note to clients, UBS analyst Roxanne Meyer noted that apparel retailer Aeropostale's third-quarter earnings of 92 cents per share was slightly better than UBS's forecast of 91 cents and the company's earlier guidance of 90-91 cents. However, said Meyer, the chain's gross margin decelerated despite the increased focus on boosting margins in the third quarter. With increased promotional activity expected in December, further deceleration was likely in the fourth quarter, said the analyst.

While sales growth at the company's PS, Aeropostale and e-commerce businesses could cushion overall sales if comparisons soften, "margin expansion could get tougher given potential for both higher bar to leverage store costs and for higher 2010 second-half sourcing costs," according to Meyer.

The analyst raised her 2009 earnings per share by one cent to $3.21; and her 2010 forecast to $3.48 from $3.37 mainly on store footage growth. But she trimmed her price target on the shares to $34 from $36 on "potential EPS risk".

Tw telecom inc. (TWTC)

Kaufman Bros. keeps hold

After meeting with tw telecom management earlier in the week, Kaufman analysts Colby Synesael and Jon Charbonneau said in a Dec. 3 note that the provider of managed network services "was well positioned for the long term."

The analysts said product expansion in 2010 will help enable next-generation IT technology in areas like cloud computing, software-as-a-service and storage/disaster recovery. Also, "as its core medium- to large-sized customers transition their legacy TDM networks to next-generation IP networks, tw telecom sees an opportunity to take wallet share from its competitors," they wrote. Also, noted the analysts, tw telecom reiterated its view that in a normal economy it could again achieve double-digit top-line growth.

The analysts maintained their hold rating and $14.50 price target on the shares, saying they would "look for [a] better entry point" on the stock.

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