Picks of the Week: Adobe, AmEx, FedEx, GE, Google

Notable Wall Street analyst opinions on stocks in the news for the week of Mar. 15-Mar. 19:

Mar. 15

Kraft Foods Inc.: Morgan Stanley resumed coverage of Kraft Foods Inc. (KFT) with an overweight rating on Mar. 15.

In a note, Morgan Stanley analyst Vincent Andrews said the firm also had a $32 price target on the shares.

Andrews said Kraft has "materially underperformed" its packaged-food peers since its final offer for Cadbury in late January -- down 0.4%, vs. its peers up around 5% and the S&P 500 up 1.2% -- and now trades at the low end of the group on a price-to-earnings basis.

"We believe KFT's performance and valuation more than reflect the low ROIC [return on invested capital] on the Cadbury acquisition ... the integration risks ahead, and likely continued weak growth at heritage Kraft," the analyst wrote.

At the current Kraft share price, Andrews said he sees "limited downside, vs. a greater likelihood of a [nearly] 15% total return by year-end". The analyst said he prefers food stocks H.J. Heinz Co. (HNZ), General Mills Inc. (GIS), and Kellogg Co. (K) -- each rated overweight -- as long term investments.

Boston Scientific Corp.: J.P. Morgan analyst Michael Weinstein lowering an investment rating on shares of Boston Scientific Corp. (BSX) to neutral from overweight on Mar. 15.

Boston Scientific shares fell the most in 17 months in New York trading on Mar. 15 after the company halted sales of heart-rhythm devices because of a documentation error with its U.S. regulatory filings. Two changes in manufacturing weren't submitted for approval to the U.S. Food and Drug Administration, Boston Scientific said in a Mar. 15 statement. There's no indication that the manufacturing changes pose any rise to patient safety, the company said.

In a Mar. 15 note, Weinstein said the FDA has put all Boston Scientific implants of its ICD products on hold, pending agency approval of a design change to the Cognis and Teligen line of ICDs. He said the company notified its salesforce on Mar. 14, but provided no indication as to how long the shutdown would last.

Weinstein noted that U.S. ICDs represent 15% of the company's sales, and depending on the duration of FDA action, Boston Scientific will be vulnerable to market share loss and reputation damage amid "an already fragile environment" in its CRM business.

The analyst lowered a year-end price target on Boston Scientific to $7 from $9.50.

Weinstein added that competitors St. Jude Medical Inc. (STJ) and Medtronic Inc. (MDT) will "certainly" benefit in the short term from the Boston Scientific news, but lasting benefits will depend the on duration and the severity of the impact on Boston Scientific's business.

He reiterated overweight ratings on both St. Jude and Medtronic.

Mar. 16

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.

Mar. 17

Adobe Systems Inc.: Deutsche Bank equity analyst Tom Enrst Jr. maintained a buy rating on shares of Adobe Systems Inc. (ADBE) on Mar. 17.

In a note, Ernst said he expects the maker of the Flash video software to post "solid" first-quarter results on Mar. 23, ahead of the Wall Street consensus expectations of revenues of around $827 million and earnings per share (EPS) of 37 cents. Ernst said the improving macroeconomic environment, alongside a strong fourth-quarter deferral, more than offset depressed demand ahead of the product cycle for Creative Suite 5 -- the newest iteration of the company's flagship bundled offering -- which he expects to launch in the second or third quarter of 2010. Ernst estimates first-quarter revenues of $835 million and EPS of 39 cents.

While uncertainty around the company's October 2009 acquisition of Web analytics company Omniture has muted investor sentiment regarding Creative Suite 5, Ernst said he believes the launch of the product should help return Adobe shares "to more typical premium levels".

The analyst hiked a price target on the shares to $46 from $44.

BlackRock Inc.: Credit Suisse equity analyst Craig Siegenthaler raised an investment rating on shares of BlackRock Inc. (BLK) to outperform from neutral on Mar. 17.

In a note, Siegenthaler said recent underperformance in BlackRock shares, and their improved valuation relative to peers, "provides an entry point" on the stock. He said he believes BlackRock is "best-positioned" to benefit from three factors that could drive growth in assets under management: ETF products, the payout market (retirees in the U.S. and Western Europe); and international distribution.

"More importantly, we expect strong EPS and [fund] flows to drive stock price outperformance over the intermediate term, Siegenthaler wrote.

The analyst raised a 2011 EPS estimate to $13.50 from $13.30, vs. the $13.22 consensus estimate of Wall Street analysts. He also lifted a price target on the shares to $280 from $270.

Mar. 18

FedEx Corp.: Goldman Sachs equity analyst Scott Malat maintained a neutral rating on shares of FedEx Corp. (FDX) on Mar. 18.

FedEx shares fell in New York trading on Mar. 18 after the world's largest cargo airline reported quarterly results that rose less than expected. Net income for the three months ended Feb. 28 rose to $239 million, or 76 cents a share. The company was projected to earn 73 cents a share, the average of 18 estimates compiled by Bloomberg. At least five analysts said in the past two weeks that FedEx may exceed their estimates or the Wall Street consensus.

Revenue gained 6.9% to $8.7 billion, which exceeded the $8.4 billion estimated by analysts. Profit in the year-earlier quarter was $97 million, or 31 cents. FedEx said earnings for the full fiscal year would be as much as $3.80 a share, up from previous guidance of as much as $3.75. Profit in the current quarter will be $1.17 to $1.37 a share, FedEx said. Analysts had projected $1.25, based on the average of 18 estimates.

Malat said in a note that the company's third-quarter EPS of 76 was above his forecast of 75 cents. He noted that "strong" results in the company's express and ground delivery units were offset by weak margins in its less-than-truckload trucking segment. He said management fourth-quarter EPS guidance compared with his forecast of $1.35.

"In addition, management noted compensation costs would likely pressure 2011 EPS," the analyst wrote.

Burger King Holdings Inc.: Deutsche Bank equity analyst Jason West raised a recommendation on shares of Burger King Holdings Inc. (BKC) to buy from hold on Mar. 18.

In a note, West said that shares of the second-largest U.S. hamburger seller have underperformed the market by around 60% over the past year. "While the stock has bounced a bit recently, we see room for further upside from here as sales and margins remain well below cyclical peaks and as investors may begin to seek out cheaper names that can still benefit from a recovering economy," he said.

"While management still has work to do to rebuild credibility, we see several positives emerging in the BKC story", West wrote, including signs of a bottom in sales trends; easing same-store sales comparisons; an improving macro-economic backdrop; and the company's renewed focus on its breakfast menu, planned for later in 2010.

West also noted as positives for Burger King increased M&A activity in the restaurant sector; a "thawing" in relations with the company's franchisees; a "compelling" stock valuation; and "still-negative [Wall] Street sentiment ... leaving plenty of room for more constructive views".

The analyst lowered his EPS estimates for the third quarter to 29 cents from 32 cents; for fiscal 2010 (ending June) to $1.32 from $1.37; and for fiscal 2011 to $1.50 from $1.55.

West raised a price target on the shares to $24 from $19.

Mar. 19

Best Buy Co.: Goldman Sachs analyst Matthew Fassler raised a rating on shares of Best Buy Co. (BBY) to buy from neutral on Mar. 19.

In making the rating change on the world's largest electronics retailer, Fassler cited the current consumer electronics product cycle and a macroeconomic recovery, and said the stock trades at one of the lowest valuation multiples in hardlines retailing, "even on trailing earnings after the worst year for consumer spending in recent memory".

Other, incremental catalysts for the stock cited by Fassler included an upward revision to TV sales forecasts; and better consumer electronics retail sales in last week's government report for February, which he said reduced risk to fourth-quarter earnings per share (EPS).

Fassler said he was inching his EPS estimates higher: for 2010, by 6 cents to $3.33; and for 2011, by 5 cents to $3.53, all on "slightly higher" sales.

He also raised a 12-month price target on the shares to $47 from $44.

Google Inc.: Standard & Poor's equity analyst Scott Kessler reiterated a buy opinion on shares of Google Inc. (GOOG) on Mar. 19

China Business News reported on Mar. 19 that the search engine may pull out of China on April 10, citing an unidentified Chinese sales agent for the company. Google may announce its exit on Mar. 22, the Shanghai-based newspaper reported, citing an unidentified Google China employee. It may also reveal plans for its China workforce on the same day, according to the report.

The company hasn't confirmed the April 10 date for its pullout, the newspaper cited the sales agent as saying. Tokyo-based spokeswoman for the company, Jessica Powell, declined to comment on the report.

In a posting on the S&P MarketScope service, Kessler said Google shares had been active and lower in pre-market trading on Mar. 19 after the China Business Daily report was cited in a Bloomberg News story.

"We expect Google to extricate itself from this market, and note these operations accounted for less than 1% of revenues in 2009, based on our calculations," said Kessler.

The analyst said he thinks Google has been negotiating with the Chinese government to try to retain a presence in the country with other offerings and R&D operations; Kessler sees "a 50/50 chance" of this occurring.

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