Stock Picks: Wal-Mart, Hewlett-Packard, Heinz

Wal-Mart Stores Inc .: Goldman Sachs analyst Adrianne Shapira reiterated a buy rating on shares of Wal-Mart Stores Inc. (WMT) on Feb. 18.

The world's largest retailer reported fourth-quarter sales that trailed its projection on Feb. 18 after cutting grocery and electronics prices. Sales at U.S. stores open at least a year fell 1.6%; Wal-Mart had projected sales to decline no more than 1%. Net income in the fourth quarter ended Jan. 31 increased 22 % to $4.63 billion, or $1.21 a share, from $3.79 billion, or 96 cents, a year earlier. Excluding a tax benefit and a restructuring charge, profit totaled $1.17 a share, topping the $1.12 expected by analysts. Revenue advanced 4.5% to $113.7 billion, trailing analysts' estimates.

The retailer forecast first-quarter comparable-store sales in the U.S. to be unchanged, plus or minus 1%. First-quarter profit will be 81 cents to 85 cents a share, Wal-Mart said. Analysts on average anticipate 85 cents.

In a note to clients, Shapira said that Wal-Mart's fourth-quarter operating earnings per share (EPS) of $1.17 surpassed her forecast of $1.12 and the company's guidance of $1.08-$1.12. Shapira said better than anticipated gross margin improvement, expense control, and foreign currency gains "drove the quarter's upside". She noted that same-store sales declined 1.6%, as she had expected, due to price deflation within the food and consumer electronic categories.

"While current sales trends are being hampered by food and consumer electronics deflation, firs-quarter [sales] should be the last tough comparison as pressure should moderate and deliver better second-half [sales] against easy year-ago comparisons," Shapira said.

Shapira's price target remained unchanged at $58. The stock is included in Goldman's Americas Buy List.

Hewlett-Packard Co.: Raymond James analyst Brian Alexander maintained a strong buy rating on shares of Hewlett-Packard Co. (HPQ) on Feb. 18.

After the close of trading Feb. 17, HP, the largest personal-computer maker, posted fiscal first-quarter profit and sales that beat analyst estimates. Excluding some costs, first-quarter profit was $1.10 a share. Analysts projected a profit of $1.06, according to a Bloomberg survey. The company also raised its full-year forecast and said it would hire more salespeople this year.

In a note to clients, Alexander said HP reported "very strong" first-quarter results, with revenue growing 8% year-over-year to $31.2 billion. He said HP is "leveraging its portfolio breadth and scale to gain share in an improving IT demand environment".

"HP is extremely well positioned to penetrate faster growing, higher margin segments of the IT ecosystem and will be a primary beneficiary of the catch-up period for enterprise IT investment in 2010," Alexander wrote.

The analyst maintained a price target of $62.

H.J. Heinz Co.: Credit Suisse analyst Robert Moskow reiterated a neutral rating on H.J. Heinz Co. (HNZ) on Feb. 18.

Moskow said in a note that the food company's CEO, Bill Johnson, announced that fiscal third-quarter results were coming in better than expected, including organic revenue growth of 3% and EPS of 83 cents, vs. the analyst's expectation of 71 cents. Moskow noted that Johnson also raised and narrowed EPS guidance for fiscal 2010 to $2.82 to $2.85.

"This was the first branded food company in our coverage in six months to meet our expectations for organic growth in a quarter," Moskow wrote.

The analyst raised his fiscal 2010 EPS estimate to $2.85 and his fiscal 2011 estimate to $3.15. He also raised his price target to $50.

"Heinz has surprised us by starting to become a good earnings momentum story that comes with top-line growth, not just margin expansion," Moskow wrote. "Unfortunately, we find it hard to upgrade our rating when it is already trading at a 5% premium to its food peers on valuation compared to an average 5% discount over the past 10 years."

NetApp Inc.: BMO Capital Markets analyst Keith Bachman lowered his opinion on shares of NetApp Inc. (NTAP) to market perform from outperform on Feb. 18.

The analyst wrote in a Feb. 18 note that "[o]n the back of a great January quarter and strong April guidance, we are taking the opportunity to move to the sidelines" on the maker of storage computers for companies such as Oracle Corp. (ORCL).

"[W]e are less bullish than at the time of our upgrade in mid-August 2009, since among other reasons, we believe the pace of estimate revisions is slowing," Bachman wrote.

The analyst maintained his fiscal 2011 EPS estimate of $1.65 and introduced a calendar-year 2011 estimate of $1.85. He also raised his target price to $35 from $33.

"We believe NTAP's products continue to be well positioned, storage demand remains robust, and management is executing extremely well," Bachman said. "With our target price at $35, we could likely become constructive again at a stock price below the $30 area."

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