Stock Picks: Time Warner, Polo Ralph Lauren

Time Warner Inc. (TWX)

Standard & Poor's Equity research keeps buy

Time Warner Inc., owner of the Warner Bros. studio and the HBO cable channel, posted fourth-quarter profit that topped analysts' estimates on Feb. 3. Net income of $627 million, or 53 cents a share, compared with a loss of $16 billion, or $13.41, a year earlier. Excluding items such as costs to cut magazine jobs, profit rose to 55 cents, beating the 52-cent average of analysts' estimates compiled by Bloomberg.

S&P equity analyst Tuna Amobi kept a buy rating on Time Warner shares on Feb. 3. Amobi said that the company's fourth-quarter earnings per share (EPS) from continuing operations of. 55 cents (before 4 cents in charges), vs. 19 cents one year earlier, was 2 cents shy of S&P's estimate and 4 cents over the Wall Street consensus forecast. The company's studio operations were "solid as expected", said Amobi, mainly on home video sales of Harry Potter and the Half-Blood Prince and The Hangover. The company's TV networks were "mixed", hed added, but the publishing unit appeared to reap some gains from restructuring efforts

Amobi said that Time Warner issued guidance for growth at a mid-teens percentage rate in 2010 adjusted EBITDA, and raised its quarterly dividend by 13% to an annual rate of 85 cents; the company also raised its share buyback capacity to $3 billion from $1 billion. "Added to sizable financial capacity, we also infer management's increased confidence in underlying business trends," said Amobi.

Polo Ralph Lauren Corp. (RL)

UBS keeps buy

Shares of Polo Ralph Lauren Corp., the designer of Chaps and Club Monaco clothing, fell the most in a year on Feb. 3 after reporting a 0.6% drop in third-quarter revenue to $1.24 billion. The company said sales for the year ending April 3 would fall in the "low single-digit" range in percentage terms, compared with an earlier projection for a "mid-single-digit" decline.

Polo fell $7.10, or 8.3 percent, to $78.57 at 10:23 a.m. in New York Stock Exchange composite trading, after earlier dipping to $78.21 for the steepest drop since January 2009. The shares jumped 78% last year.

UBS analyst Michael Binetti kept a buy rating on Polo shares on Feb. 3, noting that its third-quarter EPS of $1.10 beat his $1.04 estimate and the Wall Street consensus forecast of $1.01; he said he thinks investors "were looking for $1.20 or more". Binetti said he believes the mixed quality of third-quarter results could present a stock buying opportunity for what he still views as "one of the most compelling 1-2 year global growth stories in large-cap apparel".

Binetti said his current model for Polo sees EPS of $4.37 in fiscal 2010 and $4.81 in fiscal 2011. He said he would revisit his model after the company's 9:00 am ET conference call on Feb. 3. He has a $92 price target on the shares.

Brink's Co. (BCO)

Oppenheimer reiterates outperform

Oppenheimer analyst Ian Zaffino reiterated an outperform rating on Brink's on Feb. 3, saying that the global provider of security services reported better-than-expected fourth-quarter adjusted EPS of 59 cents, vs. his estimate of 45 cents and the Wall Street consensus view of 49 cents.

Zaffino said in a note that Brinks management expects to increase 2010 revenues at a percentage range in the low-to-mid single digits from existing businesses; favorable foreign exchange rates could provide another boost. The analyst said he believes the risk of a currency devaluation in Venezuela is be behind the company, as it already reports results there at the less favorable parallel rate.

Zaffino said he also thinks there is potential for a turnaround in the company's European business and a rebound in the diamond/jewelry business, as the luxury market "has indicated signs of a nascent recovery". He has a $27 12-18 month price target on the stock.

Monolithic Power Systems Inc. (MPWR)

Wedbush Morgan downgrades to underperform from neutral

Wedbush Morgan analyst Patrick Wang downgraded his rating on shares of Monolithic, a maker of advanced analog and mixed-signal semiconductors, on Feb. 3. Wang said in a note that he expects the company to experience gross margin compression in the near- and mid-term as low margin -- but high volume -- chip designs start ramping up in the first quarter for end markets such as notebook computers and consumer electronics.

The analyst noted that Monolithic will post financial results on Feb. 4; he sees strong fourth-quarter results, with the company providing first-quarter revenue guidance well above the Wall Street consensus expectation.

Wang said he believes aggressive pricing strategies could take hold, driving gross margins lower, outweighing significant revenue growth. He said he sees "meaningful downside risk" as a result, and cut his $28 price target on the stock to $18. The analyst expects Monolithic to post EPS of 21 cents in the 2009 fourth quarter and 68 cents in 2010.

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