Stock Picks: Deere, JPMorgan, Layne Christensen, SunPower
Deere: Morgan Joseph equity analyst Charles Rentschler raised a rating on shares of Deere (DE) to buy from hold on June 2. He set a price target of 75 on shares of the world's largest maker of farm machinery.
Rentschler said in a note that his earnings per share (EPS) estimates for fiscal 2010 (ending October) have climbed from $2.25 per share to $3.80, due to "exceptionally strong" demand from U.S. row-crop farmers buying combines and tractors, continued "brisk" business in Brazil, and the emergence of the domestic construction-equipment segment from a five-year recession.
The analyst said he believes Deere will earn $5.00 per share next year, mostly because U.S. farmers "are likely to continue to enjoy very high levels of prosperity and to buy 'big iron' even if prices go up 4 percent to 5 percent" because of the implementation of new emissions laws.
The company "is hugely benefitting from the mix: The bigger the machine, the more money Deere makes—it's that simple," Rentschler wrote.
While he sees "no significant improvement in 2011" in the company's European operations, Rentschler said he believes Deere's construction equipment sector, with 90 percent of its revenues from North America, should see increasing prosperity. He said Brazil's farm economy should remain strong due to the favorable outlook for soybeans and cane sugar.
JPMorgan Chase: UBS Securities equity analyst Glenn Schorr raised a rating on shares of JPMorgan Chase (JPM) to buy from neutral on June 2, with a price target of 50.
In a note, Schorr said the rating change on the second-biggest U.S. bank by assets reflects his belief that "the current share price is an attractive entry point that more than reflects the earnings-at-risk and partially overlooks potential offsets and better footing JPM has now vs. mid-2008."
Schorr said he sees current equity valuations on major banks as an opportunity to get into top-quality names, and "JPM is as good as it gets."
The analyst said the ultimate impact of regulatory reform on the financial industry "will be less punitive than initially feared, and JPM has several levers and a broad business mix that should provide some offset." He also said he sees see further signs of economic improvement and stabilizing consumer credit in the U.S.
"While questions remain about new capital rules, we think JPM will eventually have excess capital, which we expect to be largely deployed via dividend increases or share repurchases," Schorr wrote.
Layne Christensen: Janney Montgomery Scott equity analyst Ryan Connors reiterated a buy rating on shares of Layne Christensen (LAYN) on June 2. He has a 32 fair value estimate on the shares.
On June 2, the water-and-mining services company reported first-quarter EPS of 34¢, topping the average analyst estimate by 56 percent, according to Bloomberg data. Sales of $230.7 million exceeded the average analyst estimate by 6.3 percent.
In a note, Connors said the strength in the quarter was driven by the company's mineral exploration segment, which provides outsourced exploratory drilling services to major metals and mining companies. Segment revenue increased 85 percent from the year-earlier quarter, vs. his 45 percent estimate, enabling "significant" operating leverage for the company, the analyst said. The minerals exploration business is highly cyclical and will continue to benefit from higher rig utilization levels in the near-term, Connors said.
Regarding the company's water infrastructure segment, its largest unit by sales, Connors said "fundamentals also continue to trend in the right direction. He noted that revenue grew 3 percent year-over-year, while operating margins of 5 percent topped his 4.4 percent estimate.
The analyst raised EPS estimates for fiscal 2011 (ending January) to $1.10, from 95¢, and for fiscal 2012 to $1.55, from $1.45.
"Overall, Layne Christensen has a cyclical business mix that will benefit nicely from the economic recovery that we believe is gaining traction," Connors wrote.
SunPower: Wunderlich Securities initiated coverage on shares of SunPower (SPWRA), the second-biggest U.S. manufacturer of solar power modules, with a hold rating and 14 price target on June 2.
In a note, Wunderlich equity analyst Theodore O'Neill said that SunPower differentiates itself from the rest of the industry by making "the most efficient solar cells in mass production," thus enabling the company to maximize electricity production per square meter of space.
O'Neill said the company has a net negative cash position and he forecasts "a slowly growing book value" that will rise 9¢ by the end of 2010, which "should provide some support for the stock" until it turns profitable on a GAAP (generally accepted accounting principles) basis in 2011.
"We would not sell shares at current levels as risk appears to be balanced," O'Neill said.
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