Picks of the Week: Citi, Exxon, RIM, Visa

Notable Wall Street analyst opinions on stocks in the news for the week of Dec. 14-Dec. 18: Dec. 18

Research In Motion Ltd. (RIMM)

Canaccord Adams reiterates buy; raises estimates and price target

Research in Motion's third quarter results, reported after the close of trading Dec. 17, topped Wall Street estimates. Canaccord Adams analyst Peter Misek said on Dec. 18 that the Blackberry maker's shipments, subscribers, revenues, and earnings per share (EPS) all beat his forecasts, but more impressively the company set higher-than-expected fourth-quarter guidance.

Among RIM's third-quarter highlights, in his view, were shipments of 10.1 million units, "above everyone on [the] Street"; subscribers of 4.4 million, also topping all Wall Street forecasts; and the announcement of a new relationship with China Telecom.

Misel noted that RIM's third-quarter revenues of $3.92 billion topped his $3.85 billion estimate, and its $1.10 GAAP EPS beat his $1.07 estimate and Wall'Street's consensus projection of $1.04. In line with the company's view, re haised his $4.26 billion fourth-quarter revenue estimate to $4.32 billion and his $1.25 GAAP EPS forecast to $1.29. He hiked his $90 price target to $95.

Continental Airlines Inc. (CAL)

Stifel Nicolaus downgrades to hold from buy

Stifel Nicolaus analyst Hunter Keay downgraded shares of Continental Airlines on Dec. 18, citing the stock's valuation after he revised earnings forecasts for the fourth-largest U.S. carrier.

"Shares of CAL are trading at 6.9 times 2010 EV/EBITDAR, implying fair value of $19 per share," he wrote in a Dec. 18 note.

Keay noted that shares of Continental have increased 56% since bottoming on Nov. 2, while also significantly outperforming the broader market and the airline industry as a whole. "CAL is a high quality carrier with a strong balance sheet and exposure to the strengthening corporate travel market, but [the] shares appear to be fully valued, in our view," he wrote.

Dec. 17

Citigroup Inc. (C)

Oppenheimer reiterates perform

Citigroup Inc. shares fell sharply in premarket trading Dec. 17, a day after the bank priced a stock offer at a steep discount and the government said it wouldn't immediately sell a portion of its stake in the bank.

After the market closed Dec. 16, Citi said it would sell 5.4 billion shares of common stock at $3.15 per share to help repay $20 billion in government bailout money. The price represents a discount of nearly 9 percent from Wednesday's closing price of $3.45. Citi received $45 billion as part of the Troubled Asset Relief Program. The government converted $25 billion of that investment into a nearly 34-percent stake in the bank.

Earlier this week, the government said it would sell $5 billion worth of common stock it held in Citi at the same time the bank sold stock to repay TARP money. However, the government opted not to participate in the offering. The Treasury Department paid $3.25 per share for its stake, which means it would have lost 10 cents a share, or about $158.7 million, in the offering.

Oppenheimer analyst Chris Kotowski said Citi's agreement to sell shares to repay TARP before the government sold its stake in the bank was a mistake that will cost taxpayers. Kotowski wrote in a research note that the government had plenty of time in recent months to sell its Citi stock for more than $4 per share. Citi shares were trading above $4 as recently as last week.

Now the government will struggle to get such a price because of the dilution from the new stock Citi is selling to repay the $20 billion, Kotowski said.

The government still plans to unload its 7.7 billion shares sometime in the next 12 months. It will wait at least three months, though, to start selling any shares. Kotowski estimated the government now owns about 26 percent of the bank instead of nearly 34 percent.

Bank of America Corp. (BAC)

Standard & Poor's Equity Research keeps strong buy

S&P equity analysts Stuart Plesser and Matthew Albrecht noted on Dec. 17 that BofA named Brian Moynihan to succeed Ken Lewis as president and CEO. Moynihan is currently president of Consumer and Small Business Banking at the banking giant, and has held a variety of senior leadership roles in the company, they noted. "We applaud the promotion of an internal candidate, which should allow for continuity of management and strategy," they wrote in a Dec. 17 note. The analysts also think the resolution of this executive search "has eliminated an overhang on the shares".

S&P kept its $22 price target on the shares, and the analysts expect loan provisioning to decline late in 2010, "providing an earnings catalyst" for the share price.

Dec. 16

Corning Inc. (GLW)

Calyon Securities upgrades to buy from outperform; raises estimates, price target

After meetings with various Corning managers, Calyon analyst Steven Fox upgraded shares of the company on Dec. 16 on the expectation that its business is likely to pick up momentum "sooner than the Street is currently modeling", according to a Dec. 16 note to clients.

Fox cited recent retail trends in more mature markets, "benign" pricing on LCD panels, "surprising" LCD industry consolidation, and positive consumer trends out of China, which he thinks may drive a faster than normal start to 2010.

Fox raised his earnings forecast for 2010 to $1.65 per share from $1.59. He also raised his price target on the shares to $25 from $18.50.

Boston Beer Co. (SAM)

Deutsche Bank keeps hold; raises estimates, price target

Deutsche Bank analyst Andrew Kieley said in a Dec. 16 note that Boston Beer's new fourth-quarter earnings guidance of 40 cents to 70 cents per share (up from 10 cents-40 cents) topped his Street-high estimate of 45 cents and analysts' consensus view of 43 cents. Kieley said his new EPS estimate range is based on favorable near-term commodity costs, along with continued improvement in gross margins as the craft brewer "optimizes" its Lehigh, Mass., brewery.

The analyst said that the company's new guidance suggests volume trends remain "reasonably good" in the fourth quarter, with the higher earnings forecast appearing to be attributable to better costs, vs. major revenue acceleration.

Kieley raised his $2.10 per share 2009 earnings estimate to $2.25, and his 2010 forecast from $2.26 to $2.42. He also hiked his price target from $45 to $47. Dec. 15

Wells Fargo (WFC)

Keefe, Bruyette & Woods upgrades to market perform from underperform; raises price target Deutsche Bank upgrades to buy from neutral

At least two analysts upgraded Wells Fargo & Co. on Dec. 15, a day after the national bank said it would repay $25 billion in bailout money.

Wells Fargo said Monday after the market closed it would repay the money it received last year at the height of the credit crisis. Wells Fargo's announcement came just hours after Citigroup Inc. said it would pay back $20 billion received as part of the Troubled Asset Relief Program, and that the government would sell its stake of nearly 34 percent in the bank.

Wells Fargo was the last of the eight initial recipients of TARP money to agree to repay the government.

Keefe, Bruyette & Woods Inc. analyst Frederick Cannon raised his rating on Wells Fargo and increased his share price target to $28 from $24.

In a research note, Cannon said the capital raise and repayment of TARP ease the bank's two biggest concerns: Its capital ratios and the valuation of its risky assets.

Wells Fargo is selling $10.4 billion in new stock to help pay off the government, which will improve its capital position, Cannon wrote. The Treasury Department's approval of Wells Fargo's plan also shows the government is not concerned with the valuation of the bank's assets.

Deutsche Bank analyst Matt O'Connor also upgraded the stock. O'Connor said the capital raise removes questions that had been lingering about potential dilution to the stock. He also predicts Wells Fargo will have a strong fourth quarter, boosted by gains from hedging and the sales of securities.

Best Buy Co. (BBY)

Janney Montgomery Scott rates neutral

Janney Montgomery Scott analyst David Strasser said on Dec. 15 that the Best Buy's third-quarter results beat his estimate and the consensus Wall Street forecast, driven by cuts in selling, general, and administrative (SG&A) expenses. Strasser noted that the electronics retailer guided down expectations for gross margin for the fourth quarter due to its anticipated sales mix, something he had anticipated. The analyst attributed this predominantly to the better results in the third quarter.

While recent strength in the stock price reflects the strong third quarter, Strasser believes the share price will remain somewhat range-bound in the low to mid $40s.

Dec. 14

Visa Inc. (V)

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

Shares of Visa Inc. climbed in premarket trading Dec. 14 as analyst David Koning of R.W. Baird upgraded the payments processor, citing improved transaction levels, volume and international travel. Koning also increased his share price target to $100 from $88.

"We expect reaccelerating growth over the next couple quarters, along with annual earnings-per-share growth of more than 20 percent over the next couple years, and expect both to drive strong stock performance over the next year," Koning wrote in a note to clients.

The analyst indicated that retail sales are getting better and international travel is not down as much as it was a year ago, which is helping Visa's business.

Additionally, on Dec. 11, Standard & Poor's said Visa will be added to the S&P 500 index after market close on Dec. 18. Visa, based in San Francisco, will replace telecommunications and network equipment company Ciena Corp. on the index.

Exxon Mobil Corp. (XOM)

Standard & Poor's Equity Research reiterates strong buy

Exxon Mobil agreed to buy U.S. gas producer XTO Energy (XTO) in an all-stock deal valued at $41 billion (including $10 billion in debt) on Dec. 11. S&P equity analyst Tina Vital said in a Dec. 11 note that she likes the deal, which she views as fairly valued.

Vital believes XTO's assets will compliment Exxon Mobil's growth plans in unconventional gas, adding that "XOM's technical expertise will unlock additional XTO's resource potential".

Vital kept her price target for Exxon Mobil at $88.

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