Stock Picks: eBay, Goldman Sachs, Starbucks

Plus Wall Street analyst opinions on Patriot Coal, Massey Energy, Arch Coal, and Consol Energy

eBay (EBAY)

Susquehanna Financial maintains positive

EBay Inc., the most-visited U.S. e-commerce site, reported fourth-quarter profit that topped analysts' estimates after the close of trading Jan. 20. Net income rose to $1.35 billion, or $1.02 a share, from $367.2 million, or 29 cents, a year ago. Excluding some items, profit was 44 cents a share.

Susquehanna Financial analyst Marianne Wolk said on Jan. 21 that eBay posted an "excellent" quarter. The analyst said in a note that the results demonstrated further evidence of a turnaround in eBay's core business, which the analyst noted gained share in select geographies for first time in years, as well as ongoing momentum at its PayPal electronic payments unit.

Wolk said that strong fourth-quarter results, combined with better-than-expected guidance for 2010, should fuel a rebound in the stock in early trading Jan. 21 (the shares had gained 8.2% near midsession). She said she remains optimistic that eBay is on track for stronger earnings per share growth and free cash flows.

The analyst noted that eBay's non-GAAP fourth-quarter EPS of 44 cents beat her 40 cents estimate. She raised her 2010 EPS estimate to $1.70 from $1.67, a bit above the company's $1.63-$1.68 guidance. She has a $31 price target on the shares.

Goldman Sachs (GS)

Standard & Poor's Equity Research maintains strong buy; lowers estimate

Goldman Sachs Group, the most profitable securities firm in Wall Street history, that beat analysts' estimates on Jan. 21. Net income of $4.95 billion, or $8.20 per share, for the three months ended Dec. 31 compared with a loss of $2.12 billion, or $4.97 per share, for the same period in 2008, when the fiscal year ended in November.

S&P equity analyst Matthew Albrecht said that Goldman's fourth-quarter EPS beats his $5.40 estimate. He said in a Jan. 21 note that investment banking revenues were much better than he anticipated, offsetting a lackluster quarter for trading; Goldman's bottom line was helped by a negative compensation accrual rate.

"Though regulatory uncertainties cloud the industry's outlook, we think GS is best positioned to benefit from a cyclical recovery in investment banking," the analyst wrote.

Albrecht lowered his 2010 EPS estimate by 55 cents to $20.28 on reduced trading expectations, but kept his $216 target price.

Starbucks (SBUX)

Jesup & Lamont downgrades to hold from buy; raises estimates

Jesup & Lamont analyst Greg Schroeder lowered his rating on Starbucks on Jan. 21, saying he believes the risk/reward profile on shares of the world's largest coffee-shop operator has become less attractive.

The company reported on Jan. 20 that quarterly net income climbed to $241.5 million, or 32 cents a share, from $64.3 million, or 9 cents, a year earlier. Profit excluding some items was 33 cents, compared with analysts’ 28-cent average estimate.

"We believe the reward for further positive EPS surprises (on higher expectations) may not justify the risk of a disappointment from here," wrote Schroeder in a Jan. 21 note.

Schroeder noted that Starbucks' U.S. and international same-store sales were up 4% in the quarter, surpassing his respective growth estimates of 1% and 2%. "This was the strongest consolidated comp gain in eight quarters," he wrote.

Starbucks management raised its guidance on EPS from operations (non-GAAP basis) from 92 cents-96 cents to $1.05-$1.08 for fiscal 2010. Schroeder hiked his fiscal 2010 EPS estimate from 95 cents to $1.07 and his fiscal 2011 estimate from $1.10 to $1.15.

Patriot Coal (PCX)

Massey Energy (MEE)

Arch Coal (ACI)

Citigroup downgrades each to sell from hold


Citigroup downgrades to hold from buy

Citigroup analyst Brian Yu lowered his ratings on shares of four U.S. coal producers on Jan. 21 following "impressive" year-to-date gains of 14%-31% in their stock prices. Yu said in a note that he remains cautious on the outlook for thermal coal over the next couple of years and believes that upside for metallurgical coal is already priced into the companies' shares.

The analyst noted that Citi expects natural gas to average $4.25 per million Btu in 2010, rising to $6.25 in 2011-12; under these assumptions, he said, coal prices are likely to remain depressed in 2010 relative to production costs and recover modestly in 2011.

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