Stock Picks: IBM, BofA, Morgan Stanley, Google

IBM Corp. (IBM)

Cannacord Adams upgrades to buy from hold; raises estimate, target price

IBM Corp., the world's largest computer-services provider, reported a fourth-quarter profit of $4.81 billion, or $3.59 a share, after the close of trading Jan. 19. The company said full-year profit will exceed its earlier target, helped by the rebounding economy.

Canaccord Adams analyst Peter Misek raised his rating on IBM on Jan. 20. Miske said in a note that IBM's revenue of $27.2 billion was higher than his $26.7 billion forecast and the Wall Street consensus forecast of $26.9 billion. Misek said IBM's reported EPS of $3.59, when adjusted for a lower tax rate, would have been about $3.50, which would have been in line with his estimate of $3.51 and ahead of the Street consensus of $3.47.

Misek said that IBM management "continues to execute on its plan" and has announced that it now anticipates 2010 EPS to be at least $11. IBM reported signings in the quarter at $18.8 billion, ahead of Wall Street expectations. He also said IBM expects "strong first-quarter results out of its software division due to a strong pipeline entering 2010".

The analyst raised his 2010 EPS estimate by 42 cents to $11.03.

"In 2010, we anticipate IBM will benefit from the signing strength it experienced throughout 2009, which should result in annual growth generated within the services business," Misek wrote. He raised his target price to $150 from $130.

Bank of America Corp. (BAC)

Morgan Stanley maintains overweight

Bank of America Corp., the largest U.S. lender, posted a wider than expected fourth-quarter loss of $5.2 billion, or 60 cents a share, on Jan. 20, which included the costs of exiting the Troubled Asset Relief Program.

Morgan Stanley analyst Betsy Graseck said on Jan. 20 that BofA's revenues were lighter than expected -- similar to Citigroup 's (C) fourth-quarter report on Jan. 19 -- but its credit trends were improving. She noted that BofA's net charge-off ratio of 4.54% was 48 basis points below her forecast of 5.02%.

Graseck also pointed out that the company's reserve build was higher than expected at $1.7 billion, vs. her estimate of $1.3 billion. BofA's nonperforming loans of $33.5 billion were 9% better than her forecast.

Graseck said that BofA is he top pick among large-cap banks.

Morgan Stanley (MS)

Deutsche Bank reiterates buy

Morgan Stanley, the world's biggest brokerage, reported fourth-quarter earnings on Jan. 20 that missed analysts' estimates on a decline in trading revenue. Earnings from continuing operations were $413 million, or 14 cents a share, compared with a loss of $10.5 billion, or $10.92, in the fourth quarter of 2008.

Deutsche Bank analyst Michael Carrier said on Jan. 20 that Morgan Stanley's reported operating EPS was below his projection of 25 cents per share and the Wall Street consensus estimate of 36 cents. Carrier said in a note that the miss in the quarter was driven by weaker trading revenues (primarily in fixed income, currencies and commodities [FICC]), partially offset by healthy investment banking revenues, expenses that were in line with expectations (including compensation), "modest progress" at the company's asset management and wealth management units, and a lower tax rate.

"Despite the weak quarter, we continue to view MS as an attractive turnaround story," Carrier wrote.

He has a price target of $38 on the shares.

Google (GOOG)

Kaufman Bros. maintains buy

Kaufman Bros. analyst Aaron Kessler said on Jan. 20 that he expects Google, owner of the No. 1 search engine, to report better than expected revenue and pro forma earnings per share after the close of trading Jan. 21.

Kessler said in a note that he believes the improvements in the quarter were driven primarily by strength in e-commerce. "While we believe that investors are expecting solid results, we note that shares are down 6% from recent highs and we believe 2010 [Wall] Street estimates remain conservative (our 2010 revenue estimate is 3% above [the] Street)," Kessler wrote.

The analyst raised his 2010 estimates for revenues to $21.2 billion from $20.35 billion (vs. the Wall Street consensus view of $20.525 billion) and for pro forma EPS to $28.39 from $28.00 (vs. the Street consensus of $26.46). He also established 2011 estimates of $20.92 billion in revenues and $33.71 in pro forma EPS.

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