Stock Picks: ICE, SAIC, Unilever, Wellpoint
IntercontinentalExchange: Morgan Stanley equity analyst Celeste Mellet Brown raised estimates for IntercontinentalExchange (ICE) on Mar. 31.
The futures exchange could be headed for a better-than-expected first quarter, Mellet Brown wrote in an analyst note. Volume on ICE's commodities exchanges are "slightly behind" previous estimates, but over-the-counter energy trading volume may be ahead of predictions. Also, she estimates that ICE's revenue for each trade is beating estimates for energy, financial, and agricultural futures.
As a result, she raised her first quarter earnings-per-share estimate from $1.30 to $1.38. Analysts surveyed by Bloomberg estimate earnings of $1.31 per share.
Mellet Brown maintained her "equal-weight" rating on the company's stock. "ICE is a strong and entrepreneurial company; however, potential growth is more priced into its shares than others in our coverage," she wrote.
SAIC: Wells Fargo equity analyst Edward S. Caso Jr. lowered a rating on SAIC (SAI) to market perform from outperform on Mar. 31.
On Mar. 30, SAIC reported that revenue rose 7% last quarter from a year ago, while operating income was flat. The defense contractor lowered earnings and revenue growth estimates for the next year.
In unveiling results, executives were "very cautious" about the prospects for growth in non-warfighter defense spending, Caso wrote in an analyst note. They "highlighted a less friendly contracting environment, which has led to a significant slowdown in [contract] award activity," Caso added.
Worries about weak revenue growth may weigh on various federal contractors over the next year, Caso wrote, as he lowered his earnings-per-share estimate for SAIC's next fiscal year from $1.37 to $1.31. Analysts surveyed by Bloomberg predict earnings of $1.38 per share.
Caso lowered his price estimate on SAIC shares from a range of $20 to $23 to a range of $19 to $20. However, Caso said aggressive share buybacks by SAIC "should limit downside risk."
Unilever: Bank of America Merrill Lynch equity analyst Nico Lambrechts raised a rating on shares of Unilever (UN) to buy from neutral on Mar. 31.
Shares of Unilever have lagged those of other consumer products companies to the point that now there is a "16% valuation gap" with Nestlé and Danone, Lambrechts wrote in an analyst report.
"We believe Unilever's shares should be supported as investors continue to favor stocks exposed to" emerging markets, Lambrechts wrote. He noted that half of Unilever's sales come from emerging markets, which have provided the company an average of 9% organic sales growth since 1990.
A catalyst to Unilever's move higher could be strong results in the first quarter of 2010, Lambrecht wrote. He projects organic sales at Unilever will increase 4.3% this quarter, following a 1.8% decline a year ago.
Wellpoint: BMO Capital Markets equity analyst Dave Shove raised a rating on shares of Wellpoint (WLP) to outperform from market perform on Mar. 31.
On Mar. 23, President Barack Obama signed into law a major overhaul of the U.S. health-care system. Shove says the health-care reform process served as a "distraction" for Wellpoint, which was criticized by the Obama Administration for hiking premiums in California.
Now that the political wrangling is behind Wellpoint, "we are increasingly confident in [Wellpoint] shares," Shove wrote in a research note. The main driver of Wellpoint's success will be its commercial business, which should benefit from the economic recovery, Shove added. Wellpoint is the largest U.S. health insurer by membership. "The company maintains a large commercial business with a strong brand and exemplary networks," he wrote.
Unemployment and increases in medical costs remain "industry headwinds," but Wellpoint has accounted for those factors. Shove raised his target price from $66 to $75 and his earnings estimate for fiscal year 2010 from $6.05 to $6.17. Analysts in a Bloomberg survey projected $6.13, on average.