Stock Picks: GE, AmEx, Sonic, Sequenom
General Electric Co.: J.P. Morgan equity analyst C. Stephen Tusa Jr. reiterated an overweight rarting on shares of General Electric Co. (GE) on Mar. 16, saying the conglomerate was his "top pick".
In a Mar. 16 note, Tusa said he believed that for the first time in over 10 years, "the pieces are in place for earnings upside, a key to moving GE from value to momentum". Tusa said he believes losses are peaking at the company's General Electric Capital Services unit and should begin to decline in mid-2010. "[D]epending on the economy, we could see a rapid decline to normal levels in 2013, which would provide an estimated [earnings] tailwind of 90 cents per GE share," the analyst wrote. "The bottom line is that we still see normalized GE earnings of [around] $2 in 2013, though the trajectory, especially at GE Capital, is likely to be more front end loaded, a positive."
As for the company's industrial segment, Tusa said its services backlog was "robust", especially at the aviation division. He sees profit growth of 10% at the industrial segment in 2011.
Tusa said he sees the potential for GE's earnings to exceed analysts' consensus forecast for the first time in 10 years. He estimates GE will report earnings per share of $1.00 in 2010, vs. the Wall Street projection of 99 cents; he expects EPS of $1.30 in 2011, vs. the Street forecast of $1.20.
"GE is still considered a value play by most," Tusa wrote. "However, we believe positive [earnings] revisions would move GE decidedly into the momentum camp."
The analyst has a $22 price target on the shares.
American Express Co.: Sandler O'Neill analyst Michael Taiano maintained a hold rating on shares of American Express Co. (AXP) on Mar. 16.
Taiano said in a note that the credit-card issuer reported its monthly credit performance for its U.S. Card Services segment for February in a Mar. 16 8-K filing. The charge-off rate rose to 7.4% from 7% in January. The 30-plus day delinquency rate was 3.6%, "relatively stable with the prior month". The loan portfolio declined 3.5% from January to $49.2 billion.
"On the whole, delinquency trends were stable to slightly better (on a dollar basis), while charge-offs rose during the month," the analyst wrote. "The loan portfolio continued to decline in February and is tracking below our first quarter estimate".
"Although its valuation may have gotten ahead of itself earlier this year, we are increasingly encouraged with AXP's near-term revenue outlook given the strengthening in discretionary spending measures over the past few months across the U.S. economy, particularly for high end retailers and travel-related, which historically have been highly correlated with AXP's billed business volumes," Taiano said. He said he believes recent trends suggest discretionary spending among more affluent consumers is rebounding, which is a positive factor for the company's margins and revenue growth.
The analyst has a $43 price target on the shares.
Sonic Corp.: Piper Jaffray equity analyst Nicole Miller Regan raised a rating on shares of Sonic Corp. (SONC) to overweight from underweight on Mar. 16.
In a Mar. 16 note, Regan said she expects sequential improvement in both same-store sales and margins to lead to earnings and multiple expansion at Sonic.
"The company has elevated the value discussion", the analyst wrote, "which by incorporating bundling [of menu items] as well as changes to its marketing strategy, is likely to result in ... improved margins". Regan expects second-half 2010 same-store sales to improve to the -4% to -5% range from -13% in the second quarter of 2010.
Regan raised a price target on the shares to $12 from $8.
Sequenom Inc.: Stephens Inc. equity analyst Scott Gleason lowered a rating on shares of Sequenom Inc. (SQNM) to underweight from equal-weight on Mar. 16.
On Mar. 15, the biotechnology company posted a fourth-quarter loss excluding some items of 30 cents a share, 21 percent wider than the average analyst estimate.
Gleason said in a Mar. 16 note that he looks at Sequenom on a "sum-of-the-parts" basis. The analyst said he believes the company's genetic analysis business is worth around 2.0 times forward revenues (around $90 million). He said the current share price (before the Mar. 16 open) implied a valuation of nearly $400 million for the company's diagnostic franchise, which he believes is "substantially above" its true market value.
The analyst said he sees minimal market uptake for Sequenom's current menu of tests, and has "no degree of confidence" in the company's ability to deliver a clinically and commercially viable test for Down's Syndrome.
Gleason maintained a $4 price target on Sequenom shares.