Stock Picks: AOL, Delta Air Lines

AOL Inc. (AOL)

Merriman Curhan Ford initiates at sell Broadpoint AmTech rates neutral

AOL Inc. will start trading as an independent public company Dec. 10 after nearly a decade with Time Warner Inc. (TWX) -- and some analysts are already panning the stock.

The spinoff is likely to help boost Time Warner Inc., eliminating "a continual source of investor frustration" for the New York media conglomerate, BMO Capital Markets analyst Jeffrey Logsdon said in a client note.

AOL, meanwhile, has an uphill climb. "All of the company's segments are in decline," Merriman Curhan Ford's Richard Fetyko told investors in a note. He pointed out that AOL's long-declining dial-up subscriber base is likely to drag down visits to the company's Web sites. And that means fewer ad dollars -- the revenue stream AOL is counting on for its second act.

AOL has about 5.4 million Internet subscribers, down from a peak of 26.7 million in 2002. As that base continues to erode, it is looking to improve its Web sites and wring more advertising money from them.

Benjamin Schachter, of Broadpoint AmTech, has doubts about the strategy. In a note Tuesday, he pointed to traffic declines over the past nine months at AOL's Internet properties. "If the new management team cannot fix user engagement," he said, "most of the other initiatives will not mean much."

Delta Air Lines (DAL)

Standard & Poor's Equity Research reiterates buy; raises price target

Given signs of improving travel demand for both leisure and premium travel, investor sentiment on airline stocks is likely to continue to improve, said S&P equity analyst Jim Corridore in a Dec. 10 note. "With the industry's revenue outlook closely tied to GDP growth, we think good economic news will continue to drive the stock," he wrote.

Corridore raised his 12-month price target on Delta to $12 from $10, citing his view that as the largest U.S. carrier with the broadest network, Delta is well positioned to benefit from an improving travel outlook. Electronic Arts Inc. (ERTS)

Kaufman Bros. keeps buy; lowers estimates

The video game industry had a 13 percent drop in overall sales during November, a Kaufman Bros. analyst estimated on Dec. 10. Kaufman's Todd Mitchell also cut his forecast for game publisher Electronic Arts Inc.'s quarterly financial results, citing downbeat comments from CEO John Riccitiello on Dec. 9.

The analyst predicts industry game sales rose just 3 percent to $1.49 billion, down from a previous estimate of 10 percent growth. Mitchell expects hardware sales fell 33 percent to $810 million because of an industrywide drop in average sale prices.

Mitchell cut his third-quarter projections for Electronic Arts to earnings of 55 cents per share on sales of $1.4 billion. That's down from 64 cents per share on $1.59 billion.

T. Rowe Price Group Inc. (TROW)

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

T. Rowe Price Group Inc. was upgraded by Jefferies & Co. analyst Daniel Fannon on Dec. 10. The analyst said the asset manager is poised to grow significantly when more investors jump back into the stock market.

Fannon also raised his price target to $60 from $54. He said in a research note that T. Rowe Price will add to its market share as more customers ratchet up their investments. As the economy recovers and customers become more comfortable with their own financial positions, it is expected they will shift money into riskier investments. That will help T. Rowe Price, Fannon said.

Even with investors remaining risk averse right now, Fannon said T. Rowe Price is still able to grow at "an above average rate" because of its fixed income investment options.

Fannon forecasts T. Rowe Price will earn 57 cents per share in the fourth quarter and $2.53 per share in 2010.

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