Picks of the Week: Capital One, Dish, Disney, Fannie, TiVo

Notable Wall Street analyst opinions on stocks in the news for the week of Mar. 1-Mar. 5:

Mar. 1

FedEx Corp.: Jesup & Lamont analyst Helane Becker maintained a buy rating on shares of FedEx Corp. (FDX) on Mar. 1.

In a note, Becker said she was increasing her fiscal third-quarter earnings estimates on the second-biggest U.S. package-delivery company from 63 cents per share to 74 cents per share to reflect her view that revenues were better than expected.

She also noted that U.S. gross domestic product grew by a greater than expected 5.9% in the 2009 fourth quarter. "Since FDX touches a significant portion of GDP, we believe they benefited from this strong performance," the analyst wrote.

Becker said a number of other cargo companies reported that business in January and February was better than they expected. "Given FDX's dominant position in the market, we believe they also benefited from the strength so far in the quarter," she said.

Becker cited FedEx's "consistent record of profitability, strong balance sheet and positive growth outlook". She has a $100 target price on the shares.

Fannie Mae: Standard & Poor's equity analyst Rafay Khalid maintained a hold opinion on shares of Fannie Mae (FNM) on Mar. 1.

Fannie Mae will seek $15.3 billion in U.S. aid, the mortgage-finance company said in a Feb. 26 filing with the Securities and Exchange Commission, bringing the total owed under a government lifeline to $76.2 billion, after its 10th consecutive quarterly loss. The mortgage-finance company posted a fourth-quarter net loss of $16.3 billion, or $2.87 a share.

Khalid said in a posting on the S&P MarketScope service that Fannie's fourth-quarter loss was narrower than our $3.80 per share loss estimate, reflecting lower-than-expected loss provisions. Khalid said that while he forecasts that Fannie's loan-loss provisions will decline in 2010, he believes they will remain at elevated levels, reflecting his outlook for stabilizing delinquencies.

The analyst narrowed his 2010 per share forecast by $4.29 to a $10.64 loss. "We think the U.S. government will continue to provide financial support for FNM," Khalid wrote. He kept his 12-month price target of $1.50 on the shares.

Mar. 2

Qualcomm Inc.: Standard & Poor's equity analyst James Moorman reiterated a buy opinion on shares of Qualcomm Inc. (QCOM) on Mar. 2.

Qualcomm, the largest maker of mobile-phone chips, said on Mar. 1 that it plans to buy back as much as $3 billion of its shares and will boost its dividend by 12% to 19 cents a share from 17 cents. The program replaces a $2 billion buyback plan, which was recently completed with a $1.7 billion repurchase.

Moorman said in a Mar. 2 posting on the S&P MarketScope service that he expects average selling prices (ASPs) for the company's chipsets to stabilize following a recent drop, and expects demand to pick up in the latter part of 2010 as smart phone demand continues to increase.

"We believe the shares are attractive at current levels, particularly with the new buyback plan and a 2.1% [dividend] yield," the analyst wrote.

Moorman maintained a 12-month price target of $51 on Qualcomm shares.

Dish Network Corp.: Bank of America Merrill Lynch analyst Jessica Reif Cohen maintained a neutral rating on shares of Dish Network Corp. (DISH) on Mar. 2.

Dish Network, the second- largest U.S. satellite-television provider, posted a fourth-quarter profit that topped analysts estimates on Mar. 1 after luring customers with discounts and increased advertising. Net income fell to $179 million, or 40 cents a share. Analysts in a Bloomberg survey projected 32 cents on average.

In a Mar. 2 note, Cohen said she was raising her forecast for net subscriber additions to 507,000, from 352,000, after another quarter in which Dish Networks posted net additions above expectations. She raised her earnings before interest, taxes, depreciation and amortization (EBITDA) forecast for 2010 to $2.8 billion from a prior $2.6 billion estimate. The analyst lowered her free cash flow forecast to $718 million from $1 billion due to higher capital spending on satellite equipment and taxes.

Cohen raised her price objective on Dish Network shares to $25 from $24. She said she finds better value in shares of Cablevision Systems Corp. (CVC), Time Warner Cable Inc. (TWC), and Comcast Corp. (CMCSA).

Mar. 3

NetFlix Inc.: Kaufman Bros. analyst Aaron Kessler lowered a rating on shares of NetFlix Inc. (NFLX) to hold from buy on Mar. 3.

In a note, Kessler said he believed shares of the U.S. mail-order movie-rental service were "fully valued" at current levels, trading at 26 times his 2010 pro forma earnings per share (EPS) estimate of $2.49 and 21 times his 2011 pro forma EPS projection of $3.12. "We would look to get more constructive on [the] shares in the low $60s," the analyst wrote.

Kessler said that based on his analysis of searches for the term "NetFlix" on Google, he expects "solid" subscriber growth to continue in the 2010 first quarter.

The analyst said potential positive catalysts for NetFlix shares include the successful rollout of the NetFlix streaming service for Wii in the spring and "continued traction" with the launch of the service for the PlayStation 3 platform; additional studio deals that expand Netflix's digital catalog; and the continued trend of lower subscriber turnover. Potential negatives for the stock include increased competition, postage rate increases, and more limited margin upside, said Kessler.

He maintained a $69 12-month price target on the shares.

Blackstone Group LP: Oppenheimer analyst Chris Kotowski raised a rating on shares of Blackstone Group LP (BX) to outperform from perform on Mar. 3.

In a note to clients, Kotowski said the world's biggest private-equity company's fourth quarter profit excluding some costs related to the firm's June 2007 initial public offering of 29 cents a share, reported Feb. 25, beat both his estimate of 10 cents and the Wall Street consensus view of 21 cents, due mostly to "very strong" performance fees and investment income; Kotkowski added that core fee earnings were above expectations as well.

Kotowski raised his EPS estimates for 2010 to 97 cents from 92 cents and for 2011 to $1.76 from $1.39 and established a $20.50 target price.

Mar. 4

Walt Disney Co.: Bank of America Merrill Lynch analyst Jessica Reif Cohen raised her rating on shares of Walt Disney Co. (DIS) to buy from neutral on Mar. 4.

"At current levels, we believe [the] risk/reward [on Disney shares] is skewed highly positive", the analyst wrote in a Mar. 4 note. Disney represents "one of the most compelling equities" in the media and entertainment segment, Cohen said. "We believe the cyclical advertising recovery, a nascent consumer recovery, capital expansion projects, a new film creative cycle, [retransmission] deals [with cable operators] and continued cable network growth foster multiple catalysts that could aid DIS fundamentals".

Cohen said her new fiscal 2011 earnings per share (EPS) estimate of $2.45 is 12% higher than her previous estimate and 18 cents higher than the Wall Street consensus, reflecting her view that "substantial upside has yet to be priced into [the] shares".

Cohen said her analysis suggests that declines in unemployment can translate into "meaningful" revenue improvement for Disney's parks and resorts business. She said she expects film studio results to be aided by upcoming releases "Alice in Wonderland" and "Toy Story 3".

The analyst raised her price objective on the shares to $42 from $33.

PetSmart Inc.: Wedbush Morgan analyst Joan Storms maintained her outperform rating on shares of PetSmart Inc. (PETM).

On Mar. 3, the largest U.S. pet-store chain reported that net income for the quarter that ended Jan. 31 fell to $75 million, or 61 cents a share, beating the 56-cent average estimate of 18 analysts compiled by Bloomberg. The company projected first-quarter and annual earnings that were higher than analysts' estimates. In 2010, profit will be as high as $1.83 a share, compared with $1.59 for 2009. Analysts expect annual earnings of $1.68 a share, the average of 18 estimates compiled by Bloomberg. Sales will increase in the "low- to mid-single digit range" on a percentage basis, PetSmart said.

First-quarter profit will be 40 cents to 44 cents a share, PetSmart said, compared with 37 cents a year earlier. Analysts project first-quarter profit of 38 cents.

Storms said in a Mar. 4 note that PetSmart's 61 cents fourth-quarter EPS beat her estimates of 58 cents and the Wall Street consensus view of 56 cents; the company's $1.73-$1.83 EPS guidance for fiscal 2011 (ending January) guidance beat the $1.68 Wall Street consensus but was in line with her $1.80 forecast.

The analyst said she sees PetSmart's business in fiscal 2011 being driven by "compelling" new products; a "reset" of the company's consumables area; and improving sales of seasonal goods, hard goods, and services. She said she believes PetSmart is the best positioned specialty pet retailer "when more discretionary pet spending resumes".

Storms raised her $1.80 fiscal 2011 EPS estimate to $1.80, and her $32 price target to $35.

Mar. 5

Capital One Financial Corp.: Goldman Sachs analyst Brian Foran lowered his rating on shares of Capital One Financial Corp. (COF) to neutral from buy on Mar. 5.

In a note, Foran said he still thinks consumer credit will improve throughout 2010, but in the near term, "we are a little more cautious". The analyst said weekly data from the Federal Reserve suggests card loans are down 4% year to date. "[F]or the near term, ongoing loan shrinkage could present sticker shock," Foran wrote.

Foran also noted that the Fed has proposed a limit that a late fee can not exceed a consumer's minimum payment, which he said was an issue where consumers have a low balance and frequently miss their payments -- a characteristic of subprime lending. He said Capital One is "potentially most exposed as subprime is over 30% of cards vs. 20-25%" for most other credit-card lenders. The analyst also noted that Capital One may see higher delinquencies in February.

Foran cut his normalized earnings per share (EPS) estimate for 2010 on Capital One from $5.50 to $5.00 to reflect the impact of the Fed proposals on late fees and further loan declines. He also lowered his price target on the share to $45 from $50.

TiVo Inc.: JPMorgan analyst Bridget Weishaar raised her rating on shares of TiVo Inc. (TIVO) to overweight from neutral on Mar. 5.

On Mar. 4, TiVo won a U.S. appeals court ruling that Dish Network Corp. (DISH) and EchoStar Corp. (SATS) are still infringing its patent and should stop providing digital-video recording services.

In a Mar. 5 note, Weishaar said she sees "likely upside from a partnership with EchoStar, future infringement case wins, and an acceleration in the rate of new partnerships" for TiVo. She said she believe much of TiVo's future growth will come from commercial agreements with cable providers and telecommunications companies, rather than retail sales of its set-top boxes.

"Further, we believe that much of the revenue generated through these agreements will flow directly to the bottom line," she wrote. Weishaar estimates the margin on such agreements would be around 80%.

"After the court ruling [Mar. 4], we think that TiVo established an important precedent that its patents are defensible and that they will diligently pursue legal efforts to uphold them," Weishaar said.

She raised her price target on TiVo shares to $23 from $15.

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