Stock Picks: Chipotle, eBay, Netflix, Qualcomm

Chipotle Mexican Grill Inc.: Raymond James equity analyst Bryan Elliott raised a rating on shares of Chipotle Mexican Grill Inc. (CMG) to outperform from market perform on Apr. 22. He set a price target on $160 on the shares.

On Apr. 22, the burrito chain spun off from McDonald's Corp. (MCD) in 2006 reported first-quarter earnings excluding some items of $1.22 a share, 28 percent higher than the average of 20 analyst estimates in a Bloomberg survey.

In a note, Elliott said the company's first quarter earnings per share (EPS) far exceeded analyst estimates. He noted that revenue was up 16%, driven by comparable-store sales growth of greater than 4.3%; management continues to attribute "exceptional" margin gains to a strong store-level operating culture coupled with a financial incentive structure for store managers. The analyst said Chipotle continues to build a financial track record "unmatched in the history of the restaurant industry".

Elliott raised his EPS estimates for 2010 to $4.50 from $5.25, and for 2011 to $6.35 from $5.30.

EBay Inc.: Kaufman Bros. equity analyst Aaron Kessler maintained a hold rating and $31 price target on shares of EBay Inc. (EBAY) on Apr. 22.

EBay had its biggest drop in more than a year in Nasdaq trading on Apr. 22 after its profit forecast missed estimates.

On Apr. 21, the online auction company reported that first-quarter net income rose 11% to $397.7 million, or 30 cents a share, from $357.1 million, or 28 cents, a year earlier. Excluding some costs, profit was 42 cents a share. Analysts had projected 41 cents on average. Second-quarter profit will be 37 cents to 39 cents a share, excluding one-time items, the company said. Analysts in a Bloomberg survey had estimated 40 cents on average.

Revenue in the second quarter will be $2.15 billion to $2.2 billion, EBay said. Analysts had anticipated $2.21 billion.

Kessler said in a note that eBay reported an "in line" first quarter with strength in its Payments unit but softer-than-expected gross merchandise volume (GMV) at its Marketplace unit. He said eBay's total revenues were 1.6% above his estimate while earnings before interest, taxes, depreciation and amortization, or EBITDA, was 4.6% above his projection and pro forma EPS of 42 cents was slightly above his view of 40 cents.

Kessler said eBay remains optimistic that its fee changes in the U.S. will drive stronger U.S. growth in 2010, although management indicated that it is too early to tell.

"[W]e would like to see signs of stronger Marketplace growth," Kessler said.

Netflix Inc.: Janney Montgomery Scott equity analyst Tony Wible reiterated a sell recommendation and assigned a $47.50 fair value estimate on shares of Netflix Inc. (NFLX) on Apr. 22.

On Apr. 21, Netflix said first-quarter profit rose 44% as the movie subscription service signed up new customers and increased online offerings.

Net income advanced to $32.3 million, or 59 cents a share, from $22.4 million, or 37 cents, a year earlier, the Los Gatos, California-based company said in a statement. Sales rose 25% to $493.7 million, meeting the average estimate of 24 analysts surveyed by Bloomberg.

First-quarter profit topped analysts' predictions of 54 cents a share, the average of 28 estimates in a survey.

The company projects second-quarter earnings will rise to 62 cents to 73 cents a share on sales of as much as $525 million. Analysts surveyed by Bloomberg estimated profit of 72 cents on revenue of $516.4 million.

Earnings for the full year will be $2.41 to $2.63 a share on sales of as much as $2.16 million. Analysts expected profit of $2.65.

"[W]e believe NFLX remains overvalued based on street expectations that do not adequately discount: 1) potential changes in the competitive environment (Redbox and digital threats), 2) content cost inflation as studios exercise more control over supply, and 3) digital risks that will only multiply as NFLX pushes more subscribers towards digital content," wrote Wible in a note.

"We readily acknowledge that our SELL call has not worked," Wible wrote. "While our timing has been off, we still cannot ignore the threats facing NFLX from intensifying competition, cost inflation, and digital commoditization."

Qualcomm Inc.: FBR Capital equity analyst Craig Berger maintained an outperform rating on shares of Qualcomm Inc. (QCOM) on Apr. 22. He lowered a target price on the shares to $48 from $50.

On Apr. 21, Qualcomm, the biggest maker of chips that run mobile phones, reported net income was $774 million, or 46 cents a share, in the three months ended Mar. 28. That compares with a loss of $289 million, or 18 cents, a year earlier, when the company paid to settle a patent case with Broadcom Corp. Sales last quarter rose to $2.66 billion.

Analysts had predicted profit of 46 cents a share on sales of $2.63 billion. Qualcomm had raised its forecasts for the second quarter on March 25, citing stronger-than-expected licensing and sales.

Qualcomm projected profit of 40 cents to 44 cents a share for this quarter. Analysts predicted 44 cents, according to the average estimate in a Bloomberg survey.

Sales this quarter will be $2.5 billion to $2.7 billion, Qualcomm said. Analysts had projected $2.66 billion on average.

Berger said in a note that Qualcomm reported "in-line" second-quarter results and forward guidance, "a relative disappointment since competitors continue to report upside results".

The analyst said the company "is clearly being negatively impacted" by several factors, including chipset share losses to other companies, chipset and smartphone pricing pressures, and "excessive" operating expenses.

Berger lowered EPS estimates for fiscal 2010 (ending September) to $2.30 from $2.31, and for fiscal 2011 to $2.54 from $2.63.

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