Stock Picks: Baidu, Intel, PetSmart, Tiffany

Baidu Inc.: Kaufman Bros. equity analyst Aaron Kessler raised a rating on shares of Baidu Inc. (BIDU), China's largest search engine, to buy from hold on Mar. 23.

On Mar. 23, Google Inc. (GOOG), owner of the world's most popular search engine, defied China's self-censorship rules by redirecting mainland Chinese users to an unfiltered Hong Kong Web site, threatening its ability to operate in the world's largest Internet market.

Kessler said in a note that while there is still uncertainty into the final outcome of Google's ability to operate an uncensored search site in China, he believes that in the near term it is very likely the Chinese government would restrict access for Chinese users to Google's site. The analyst said Baidu would be a clear beneficiary if the Chinese government took such a step.

Kessler said he believes Baidu's pro forma earnings per share (EPS) could benefit by $4.76 in 2011, or 35%, if Google's China site were restricted. The analyst sees pro forma EPS of $9.55 in 2010 and $13.47 in 2011.

He raised a $540 price target on Baidu to $690.

Intel Corp.: Lazard Capital equity analyst Daniel Amir reiterated a buy rating on shares of Intel Corp. (INTC) on Mar. 23.

Amir said in a note that Intel's CE4100, a second generation system-on-a-chip (SoC) device aimed at the set-top box, Blue-ray and DTV market, is gaining traction at European-based Linux set-top box providers. "While the CE4100 is not enough to move the needle for Intel overall revenue, we believe the 2010 revenue opportunity could be $50 million to $100 million," Amir wrote. ""We believe that this is part of INTC's overall strategy to further penetrate the consumer market."

The analyst said his contacts with Intel's customers suggest that both first-quarter and second-quarter PC shipments are tracking higher than he previously had forecast. Amir said that management guidance of first-quarter revenue decline of 8% to the $9.7 billion figure that was the midpoint of the range provided by the company is "conservative"; he raised his estimates for the first quarter to $10 billion in revenues and 40 cents EPS (down 4.5%), and for 2010 to $42.7 billion in revenues and $1.69 EPS.

Amir has a $29 price target on the shares.

PetSmart Inc.: Janney Montgomery Scott equity analyst David Strasser lowered a rating on shares of PetSmart Inc. (PETM), the largest U.S. pet-store chain, to neutral from buy on Mar. 23.

In a note, Strasser said the move was based primarily on the stock's valuation. The analyst said that since an upgrade of the shares on October 5, 2009, the stock rose 52% vs. a 14% advance for the S&P 500 index. He noted that PetSmart reported sequential improvement in hardgoods in its fiscal 2010 (ended January) fourth quarter and issued guidance for gross margin improvement in fiscal 2011.

"This trend should continue in fiscal 2011, but it is already priced into our earnings model and embedded in [the] current valuation" of the stock, the analyst said. "PETM continues to execute well, and opportunities exist for a modest earnings upside as the economy recovers, but we believe opportunities for outperformance have diminished after this big run."

Strasser has a fair value estimate of $30 on the shares.

Tiffany & Co.: Bank of America Merrill Lynch equity analyst Lorraine Hutchinson maintained a buy rating on shares of Tiffany & Co. (TIF) on Mar. 23.

On Mar. 22, Tiffany, the world's second-largest luxury jewelry retailer, reported fourth-quarter profit that trailed analysts' estimates after expenses rose. Earnings from continuing operations totaled $1.09 a share, New York-based Tiffany said. Analysts predicted $1.13 a share, the average of 16 estimates compiled by Bloomberg.

In a note, Hutchinson said Tiffany's EPS of $1.09 was below her $1.11 estimate as higher sales of wholesale diamonds pressured gross margin more than she anticipated.

She noted that for the fiscal 2011 (ending January) first quarter to date, worldwide sales are exceeding the company's plans to grow at a percentage rate “in the high teens”.

"Tiffany should drive earnings higher with 5% square footage growth, positive [same-store sales growth] in most regions, higher gross margin and share repurchases" in fiscal 2011, the analyst wrote. She raised her fiscal 2011 EPS estimate by 4 cents to $2.46. Hutchinson said she continues to view Tiffany as being "well poised" to gain market share in fiscal 2010.

Hutchinson raised her price objective on the shares to $53 from $48.

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