Stock Picks: Aon, Brown & Brown, IBM, RIMM

Aon Corp. and Brown & Brown: Janney Montgomery Scott equity analyst Steven Labbe raised a rating on shares of Brown & Brown (BRO) to buy from neutral, and lowered a rating on shares of Aon Corp. (AON) to neutral from buy, on May 24.

"We like the insurance brokers," Labbe said in a note. He said the group sells at an attractive multiple to the industry's depressed earnings and cash flow. "We are not sure when organic growth in revenues will accelerate, but earnings growth can and will be impressive when it does," he said. "We would rather be early than late to own the stocks."

Labbe said in the current market turmoil that insurance brokers -- "financials without balance sheets" -- are likely to attract risk-averse investors.

The analyst said he considers Brown & Brown "incrementally more attractive" than Aon. "[W]e believe there is more upside to 2011 EPS expectations for BRO than AON, primarily because of business mix," he said. He also said he likes Brown & Brown's balance sheet - with "only $27M of net debt and no pension liabilities" -- better than Aon's.

Harris Corp.: Morgan Joseph equity analyst Michael French reiterated a buy rating and $56 price target on shares of Harris Corp. (HRS) on May 24.

On May 21, Harris, a maker of military radios and information technology, agreed to buy CapRock Communications, a global provider of satellite equipment, for $525 million in cash to spur sales outside the U.S. Excluding acquisition-related costs, the purchase will add to earnings next year and contribute more in 2012, Harris said in a statement.

"The acquisition is consistent with our belief that Harris' M&A pursuits are in the communications arena and follow the acquisition of Tyco Electronics' Wireless Systems business last April," French wrote. "We believe the CapRock acquisition should help increase the number of government and maritime communications customers," French said. He noted that the transaction will also help the company enter into the energy communications market.

"With operations in the U.K., Brazil, and Indonesia we believe CapRock offers Harris solid growth potential in international markets," French said. "We believe that Harris' strong order flow in recent quarters positions the company well for growth in fiscal 2011," he wrote.

International Business Machines Corp.: Standard & Poor's equity analyst Thomas Smith reiterated a strong buy rating on shares of International Business Machines Corp. (IBM) on May 24.

On May 24, IBM, the worldís biggest computer-services provider, agreed to buy Sterling Commerce for $1.4 billion in cash , gaining software that helps businesses conduct transactions.

IBM will buy Dublin, Ohio-based Sterling from AT&T Inc., the biggest U.S. phone carrier, according to a statement from the companies. Sterling's software helps businesses share information and transfer files to other companies, according to its Web site.

"If concluded as we expect in the second half of 2010, we believe the deal would bolster IBM's business-to-business software offerings," Smith wrote in a posting on the S&P MarketScope service.

Smith said Sterling has about 2,500 employees who would be integrated into IBM's WebSphere unit.

"We view the proposed deal as in line with the company's aggressive software segment expansion plans," he said.

Research In Motion Ltd.: Kaufman Bros. equity analyst Shaw Wu reiterated a buy rating and $93 price target on shares of Research In Motion Ltd. (RIMM), the maker of the BlackBerry phone, on May 24.

In a note, Wu said a recent pullback in the shares of RIM has created an opportunity for investors. "[W]e find the risk-reward compelling here ... for arguably one of the strongest and most defensible franchises in mobile devices and a company many are forecasting to grow at least 15%-20% over the next few years.

Wu said he believes analyst concerns about RIM are "overdone" and that the Wall Street consensus view "continues to underestimate and underappreciate RIMM's prospects".

The analyst said the smartphone market is still in its early stages, "with only approximately 17% global penetration" according to market research firms.

"[W]e continue to believe the company is well positioned in the smart phone space with its vertical integration and superior push network technology," Wu wrote.