Stock Picks: Capital One, Tyson, TiVo, Marvell
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.
Tyson Foods Inc.: BB&T Capital Markets analyst Heather Jones lowered her rating on shares of Tyson Foods Inc. (TSN) to hold from buy on Mar. 5.
The analyst cited the valuation of the Arkansas-based processor of chicken, beef and pork in a Mar. 5 note. She said the shares closed at $17.50 on Mar. 4, above her prior $17 price target, and are up 43% since the beginning of the year, compared to a 0.7% increase in the S&P 500 index. Jones noted that the shares trade roughly in line with its industry peers, excluding Hormel (HRL), "which garners a premium given its greater packaged food profile".
Jones said pork and beef packing margins are still "very attractive". She noted that live cattle and hog prices have moved higher, which typically would be somewhat negative for Tyson, but "end prices have moved more quickly, resulting in margin expansion". She also said chicken profitability is "very solid".
"Based upon current fundamental trends, we believe upside is likely to our fiscal 2010 estimate" of $1.47 EPS, the analyst wrote. "However, we do not foresee enough upside to justify a much higher price target at this time."
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.
Marvell Technology Group Ltd.: Morgan Keegan analyst Harsh Kumar reiterated his outperform rating on shares of Marvell Technology Group Ltd. (MRVL) on Mar. 5.
On Mar. 4, the maker of processors for the BlackBerry phone reported that fourth-quarter sales rose 64% to $842.5 million.
In a Mar. 5 note, Kumar said that Marvell's fourth-quarter EPS of 40 cents on $842.5 million in revenues came in ahead of Wall Street consensus expectations of 37 cents on $841.8 million in revenues. He said that the outperformance was largely driven by non-operating income, which added 2 cents to EPS.
Kumar said Marvell issued first-quarter guidance of 34 cents to 40 cents EPS on revenues of $825 million to $860 million, vs. consensus expectations of 32 cents EPS on $797.7 million in revenues. He said Marvell also gave longer-term targets of 20% to 25% revenue growth, gross margin of 58% to 60%, operating margin of 30%, and a tax rate of 5% to 8%.
The analyst raised his fiscal 2011 estimates to $1.58 EPS on $3.7 billion in revenues from $1.30 EPS on $3.44 billion in revenues.