Stock Picks: Dell, CBS, Schlumberger, First Solar

Dell Inc.: R.W. Baird analyst Jayson Noland maintained a neutral rating on shares of Dell Inc. (DELL) on Feb. 19. After the close of trading Feb. 18, the world's third-largest personal-computer reported that holiday sales of low-priced PCs and higher component costs Gross margin, the percentage of sales that remain after deducting production costs, was 17.4%, below the 18% projected on average by analysts.

Fourth-quarter net income slipped to $334 million, or 17 cents a share, from $351 million, or 18 cents, a year ago. Sales rose 16% to $14.9 billion, beating the average estimate of $13.8 billion. Profit before some costs was 28 cents a share.

Noland said in a Feb. 19 note that fourth-quarter earnings per share (EPS) and revenue figures exceeded the Wall Street consensus view. He said the revenue outperformance were due to better-than-expected results from the company's hardware businesses. Noland noted that gross margins were down 90 basis points from the preceding quarter, which management attributed to increased contribution the Consumer segment and component constraints.

The analyst cut his $1.32 fiscal 2011 (ending January) EPS estimate to $1.26. He said he "remains on the sidelines" given concerns around the timing of a broad-based PC replacement cycle, the integration of the acquired Perot Systems unit, and further acquisitions. He has a $17 price target on the shares.

CBS Corp.: Goldman Sachs analyst Drew Borst reiterated a neutral opinion on shares of CBS Corp. (CBS) on Feb. 19.

After the close of trading Feb. 18, CBS, owner of the most-watched U.S. broadcast network, said fourth-quarter profit fell 57% after advertising sales dropped at its radio stations and billboard unit. Net income declined to $58.8 million, or 9 cents a share, from $136.1 million, or 20 cents, a year earlier. Excluding a writedown to the value of radio assets and other items, profit of 25 cents met the average of analysts' estimates compiled by Bloomberg.

Borst said in a Feb. 19 note that the adjusted EPS figure of 25 cents was in line with his estimate and the consensus view of Wall Street analysts. Revenue was 2% ahead of his estimate, but EBITDA (earnings before interest, taxes, depreciation and amortization) missed his estimate by 4% due to higher than expected operating expenses at the company's entertainment division. Borst said CBS highlighted three themes for 2010, which he believes are largely factored into 2010 consensus estimates: better advertising trends, cost cutting, and rising retransmission fees from cable operators.

Borst noted that in a departure from the past, the company did not provide 2010 EBITDA guidance. He raised EPS estimates for 2010 to 93 cents from 90 cents; for 2011 to $1.13 from 98 cents; and for 2012 to $1.26 from $1.09. He also increased his 12-month price target to $14 from $13.

Schlumberger Ltd.: Standard & Poor's equity analyst Stewart Glickman maintained a hold opinion on shares of Schlumberger Ltd. (SLB) on Feb. 18.

Schlumberger, the world's largest oilfield-services provider, is in advanced talks to buy drilling-fluids provider Smith International Inc. (SII), the Wall Street Journal reported on Feb. 19, citing people familiar with the negotiations.

"Strategically, we like the reported move," wrote Glickman in a posting on the S&P MarketScope service. He noted that Schlumberger and Smith are already joint venture partners in the fluids company M-I Swaco (which accounts for about 50% of Smith's revenues, and nearly 75% of its operating income), so "integration risk appears minimal". Glickman also said that Smith has a strong market position in deepwater drilling, which he views as a strong growth catalyst for the industry in 2010 and 2011.

First Solar Inc.: Wedbush Morgan analyst Christine Hersey maintained a neutral rating on shares of First Solar Inc. (FSLR) on Feb. 19 but cut her price target after the world's largest maker of thin-film solar power modules reiterated its prior 2010 sales and profit forecasts, disappointing investors who had expected an increase.

Hersey said in a note that the company's fourth-quarter EPS of $1.65 and revenues of $641.3 million beat the Wall Street consensus estimate. She said she is cautious on First Solar as the focus now shifts to its 2010 outlook. Hersey said potential changes to the feed-in-tariff policy in Germany could impact results in 2010 and 2011, particularly if ground mounted systems are limited to so-called Brownfield sites. The analyst said project development risks could impact First Solar's ability to deploy large volumes of modules.

Hersey said she expects the company to experience margin contraction and pricing pressure. She cut her $6.28 2010 EPS estimate to $6.01 and her $6.74 2011 projection to $6.30. She also lowered her $125 price target to $110.

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