Picks of the Week: Apple, CA, Chevron, Intel, Nike

Wall Street analysts give their buy, sell, or hold views on 10 stocks in the news this week

Notable Wall Street analyst opinions on stocks in the news for the week of Mar. 8-Mar. 12:

Mar. 8

Hewlett-Packard Co.: Thomes Weisel Partners analyst Doug Reid reiterated his overweight rating on shares of Hewlett-Packard Co. (HPQ) on Mar. 8.

On Mar. 5, the world's largest personal-computer maker revised its first-quarter results, cutting profit by 3 cents a share, after a U.K. lawsuit against its Electronic Data Systems unit increased its legal costs. The new net income figure is $2.25 billion, or 93 cents a share, down from the $2.32 billion, or 96 cents, reported on Feb. 17. Excluding some costs, the profit was $1.07 a share, compared with $1.10 in the earlier report.

Hewlett-Packard increased its legal reserve fund after a London court ordered EDS to make an interim payment of about $112 million to British Sky Broadcasting. The court ruled in BSkyB's favor in a dispute over a services contract between the companies. Justice Vivian Ramsey said EDS was liable for "fraudulent misrepresentation giving rise to damages."

"The revision is unrelated to H-P's strong business performance in the first quarter," the company said in an e-mailed statement on Mar. 5.

"We do not expect the increased contingency reserve to impact our future HPQ EPS estimates", wrote Reid in a Mar. 8 note, because the company has adequate reserves in place, in our opinion". Reid said he believes the current litigation will have no impact on his revenue and EPS growth outlook for the company.

The analyst maintained his second-quarter revenue and non-GAAP EPS estimates of $29.57 billion and $1.04, respectively. Reflecting the restated January quarter results, Reid reduced his full year fiscal 2010 EPS estimate from $4.40 to $4.37. He maintained his revenue and EPS estimates of $128.7 billion and $4.89 for fiscal 2011.

Reid said he estimates that Hewlett-Packard will end the April quarter with a total cash and investment balance of $23.2 billion, vs. his prior estimate of $23.6 billion. "We do not expect the payments to have a material impact on HPQ's cash balance," the analyst wrote.

The analyst has a $60 price target on the shares.

PNC Financial Services Group Inc.: FBR Capital Markets analyst Paul Miller raised his rating on shares of PNC Financial Services Group Inc. (PNC) to outperform from market perform on Mar. 8.

Miller said in a note that the Pittsburgh-based banking company announced on Feb. 2 the sale of $3 billion of common equity and the planned sale of its investment servicing business as part of a capital plan to repay the $7.6 billion TARP investment. Miller said the expected boost to tangible common equity shifted its risk profile "to low risk from medium risk".

"We expect this upgrade to be somewhat controversial due to investor concern surrounding the lower quality of earnings driven by purchase accounting accretion", Miller wrote, which he figured added $3.17 to his $3.63 fiscal 2009 operating EPS estimate. "While we acknowledge that this earnings stream is lower quality," Miller said. The analyst said he believes that nearly $1.50 of this accretion can be recaptured as it stems from higher-cost CDs, which are transitioning into lower-cost core deposits at a rate greater than PNC's initial expectations, and as the non-credit-impaired loan customers refinance or reprice into normal balance sheet loans.

"PNC also has some of the strongest credit metrics relative to peers, which we believe should limit downside risk from current levels," the analyst wrote. He said that if PNC recaptures any of the accretion from the non-credit-impaired portfolio, "it should provide upside to our estimated $5.00 to $6.00 range of 'normal' EPS".

Miller lifted his price target on the shares to $65 from $55.

Mar. 9

Apple Inc.: Broadpoint AmTech analyst Brian Marshall reiterated his buy rating on shares of Apple Inc. (AAPL) on Mar. 9.

In a note, Marshall said the next major catalyst for Apple shares will be the launch of the iPad on Apr. 3. "We believe the general consensus (i.e. select media outlets) view of this device and its potential is overly pessimistic," Marshall wrote. "We note the vast majority of the naysayers have not yet had the opportunity to use the iPad on a firsthand basis."

Marshall said the "true genius" of the device is its media and content -- such as eBooks, newspapers, magazines, applications, games, movies and TV episodes -- which he believe will be help provide recurring revenues for Apple.

The analyst raised his estimate for calendar 2010 iPad shipments to 4.0 million units from 2.2 million units. He also hiked his calendar 2010 revenue estimate to $57.913 billion from $55.738 billion, and his earnings per share (EPS) estimate to $12.75 from $12.00.

"In our view, Apple remains the best technology company on the planet," Marshall wrote. He raised his price target on Apple shares to $280 from $264.

Intel Corp.: Robert W. Baird analyst Tristan Gerra upgraded a rating on shares of Intel Corp. (INTC) to outperform from neutral on Mar. 9.

In a note, Gerra said that checks with industry sources point to large PC manufacturers recently raising their procurement forecasts for the first half of 2010, in part due to a rebound in corporate PC spending for 2010. "Intel could outperform semiconductor peers this year, notably those with stretched lead times," Gerra wrote. "Should a gradual recovery in true end-demand prolong the current upcycle, INTC shares should benefit as well."

Gerra expects Intel's revenues to rise 15% in 2010, following two consecutive years of revenue declines.

"Intel's valuation is compelling, in our view," Gerra wrote. The analyst raised a price target on the shares to $26 from $24.

Mar. 10

Chevron Corp.: Bank of America Merrill Lynch analyst Doug Leggate lowered his rating on shares of Chevron Corp. (CVX) to neutral from buy on Mar. 10.

In a note, Leggate said that in the near term, production for the second-largest U.S. energy company looks "flat"; the improving margin trend vs. the company's peers is "largely done", while "elevated" capital spending over the next few years would "challenge" relative returns.

"Oil leverage differentiates CVX," the analyst wrote, "but only the conviction that prices move higher drives upside vs. peers and is reflected in [the stock's] relative performance within the [oil majors] group".

Regarding Chevron's refining and marketing business, Leggate said reducing refining exposure "is likely welcomed ... [c]urrent downstream weakness is probably priced in [to the stock] while any reward for paring exposure at the low of the cycle may be limited".

The analyst forecasts EPS of $8.84 for 2010, $9.13 for 2011, and $8.69 for 2012.

"Absolute value and an attractive dividend position CVX as a staple in energy portfolios for those with a long-term view," Leggate said. "[N]ear term, we believe the value proposition has shifted to Exxon Mobil Corp. (XOM)," which he rates buy.

Leggate lowered his price target on Chevron shares to $90 from $95.

NYSE Euronext: Raymond James analyst Patrick O'Shaughnessy maintained his outperform rating on shares of NYSE Euronext (NYX) on Mar. 10.

In a note, O'Shaughnessy said he was raising earnings per share (EPS) estimates on the owner of the world’s largest stock exchange to reflect stronger-than-expected derivatives trading in Europe. His new 2010 and 2011 EPS estimates are $2.34 and $2.67, up from $2.24 and $2.57, respectively.

Based on quarter-to-date trends, the analyst said he was also raising his expectations on U.S. equities volumes, but lowering his forecast for European equities volumes.

As for the company's Mar. 10 announcement that it completed the sale of a minority stake in its U.S. futures exchange, NYSE Liffe, to six banks and brokers including Citadel Investment Group LLC and Goldman Sachs Group Inc. (GS), the analyst said that "[w]hile we continue to be skeptical that NYSE Liffe U.S. will be able to compete effectively with CME Group [CME], we acknowledge the downside of the venture is relatively limited."

"With a combination of top-line revenue growth opportunities and continued cost-cutting, NYSE Euronext has the opportunity for strong earnings growth in 2010 and 2011 and is currently our top exchange investment recommendation," O'Shaughnessy said.

The analyst has a $33 price target on the shares.

Mar. 11

CA Inc.: Raymond James analyst Michael Turits maintained a strong buy rating on shares of CA Inc. (CA) on Mar. 11.

CA Inc., the second-largest maker of software for mainframe computers, agreed on Mar. 10 to buy closely held Nimsoft Inc. for about $350 million to expand in cloud computing. The all-cash deal will probably cut net income by 10 cents a share in the year ending March 2011, Chief Financial Officer Nancy Cooper said on a conference call. Nimsoft's products help customers monitor so-called cloud systems, which access computers, applications and data through the Internet.

In a Mar. 11 note, Turits said the purchase continues a string of "aggressive" acquisitions this fiscal year aimed at extending CA's ability to monitor virtualized and service provider data center environments. "We have been impressed by the quality, aggressiveness and strategic discipline CA has shown with these purchases, which we believe should be effective in accelerating sustainable top-line growth," said Turits. "However, they do extract a price near term". The analyst estimates that CA spent as much as $700 million on acquisitions in fiscal 2010 (ending March) vs. its target range of $300-$500 million.

He said Nimsoft had $54 million in calendar 2009 bookings, up 32% from the previous year, and $32 million in revenues, up 18%, and was cash flow positive every quarter last year.

Turits said the Nimsoft deal, which is expected to close this quarter, will be dilutive to CA's fiscal 2011 earnings per share (EPS) by 3 cents, The deal is expected to be neutral to CA's earnings in fiscal 2012, he said. His EPS estimates are $1.68 for fiscal 2010 and $1.84 for fiscal 2011.

Bed Bath & Beyond Inc.: FBR Capital Markets analyst Stephen Chick lowered his rating on shares of Bed Bath & Beyond Inc. (BBBY) to underperform from market perform on Mar. 11.

In a note, Chick said the largest U.S. home-furnishings retailer is expected to "cycle" market-share benefits from the liquidation of former competitor Linens 'N Things, which had fully liquidated from the home furnishings market through December 2008. Chick said he thinks removal of Linens 'N Things from the market likely helped the company's same-store sales in 2009 by around 400 basis points. He said that estimated sales and EPS for the fiscal fourth quarter "should be good for BBBY ... yet we expect that recent trends represent the best it gets".

"Given that we have heard other companies have to increase expenses for things such as bonuses and labor, this leaves us concerned" about selling, general and administrative (SG&A) expenses heading into 2010 for Bed Bath & Beyond, the analyst wrote.

Chick said his upwardly revised fourth-quarter EPS estimate of 76 cents is ahead of the Wall Street consensus estimate of 72 cents; his 2010 EPS estimate of $2.50 is above the Street consensus estimate of $2.47.

The analyst lowered his price target for the shares to $38.00, from $38.50.

Mar. 12

Netflix Inc.: Morgan Stanley analyst Scott Devitt lowered a recommendation on shares of Netflix Inc. (NFLX) to equal-weight from overweight on Mar. 12.

In a note, Devitt said the rating change on the largest U.S. mail-order movie-rental service was based on the stock's valuation. "We remain positive on Netflix's core DVD-by-mail and digital offering, but the recent rally in [the] share price, expectation of future earnings beats, longer-term potential hike in postal rates, [and] competition from Redbox and emerging digital players lead us to look elsewhere for investment ideas," the analyst wrote.

Devitt noted that Netflix's shares were 59% since mid-August, vs. gains of 19% for the Nasdaq composite index and 15% for the S&P 500 index.

"We think Netflix shares are fairly valued and that short interest of [nearly] 19% could provide near-term support if the company continues to beat [or] meet expectations as we expect," Devitt wrote. "We believe Netflix's hybrid distribution model (physical DVD-by-mail and digital streaming) positions the company favorably to capture meaningful share of the video/TV rental market."

The analyst has a price target of $68 on the shares.

Nike Inc.: Susquehanna Financial Group analyst Christopher Svezia reiterated a neutral rating on shares of Nike Inc. (NKE) on Mar. 12.

"We believe global sales trends continue to show sequential improvement and leaner inventories should lead to better margins" for the world's largest athletic-shoe maker, the analyst wrote in a note. "[W]e expect a more moderately paced margin recovery as investments accelerate and believe the current valuation is balanced against this backdrop".

Svezia noted that Nike reports third-quarter earnings after the close of trading Mar. 17. He said his third-quarter EPS estimate of 90 cents is 2 cents above the Wall Street consensus view. He raised his fourth-quarter EPS estimate to $1.00 from 95 cents in anticipation of continued gross margin gains from "clean" inventory and fewer markdowns. He hiked his EPS estimates for fiscal 2010 (ending May) to $3.71 from $3.64 and for fiscal 2011 to $4.08 from $3.92.

"We believe a moderate near-term growth outlook and the recent share price run leaves valuations balanced with little room for near-term upside as shares approach all-time highs," Svezia wrote.

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