Stock Picks: Convergys, Rosetta Stone, Take-Two, Texas Instruments

Convergys: Kaufman Bros. equity analyst Karl Keirstead reaffirmed a sell rating on shares of Convergys (CVG) on June 8. He lowered a price target on shares of the Cincinnati-based operator of customer-service call centers to $9 from $11.

In a note, Keirstead said that Wall Street sentiment toward the call center outsourcing industry weakened after "most vendors cited continued volume and pricing pressure on their [first-quarter earnings conference] calls, given fears of softness in Europe (a minor issue for Convergys, given its relatively small European exposure)." Based on his industry checks, Keirstead said he believes call center volumes weakened further in the second quarter of 2010.

"The bull case on Convergys shares has been rooted in a widely held view that the new [chief executive] is likely to break up the company" by selling its billing software unit following the disposal of the company's human resources outsourcing unit, or by seeking "even more fundamental strategic alternatives," the analyst said. Wall Street is valuing the core call center business at approximately $850 million, according to Keirstead.

"[W]e remain cautious about the overall industry fundamentals and the ability of Convergys to meet its 2010 financial targets," he wrote.

Rosetta Stone: R.W. Baird equity analyst Amy Junker on June 9 lowered a rating on shares of language-learning software maker Rosetta Stone (RST) to neutral from outperform. She has a price target on the shares of $26.

On June 8, Arlington, Va.-based Rosetta Stone said in a statement that Brian Helman intends to leave his position as chief financial officer of the company on Aug. 31, in order to relocate back to Florida.

In a note, Junker said she was changing the rating on the shares due to the timing of the CFO's departure. The analyst said she continues to view the company's long-term growth prospects favorably but is "hard-pressed to recommend putting new money to work" in the stock, as she believes the timing of Helman's departure "adds risk to the [Rosetta Stone] story," given its pending next-generation product launch in the 2010 third quarter and the "significant" investments the company is making internationally.

Junker maintained earnings per share (EPS) estimates of 96¢ for 2010 and $1.46 for 2011.

Take-Two Interactive Software: Standard & Poor's equity analyst Jim Yin raised a rating on shares of Take-Two Interactive Software (TTWO) to sell from strong sell on June 9. He raised a price target on the shares to $10 from $8.

On June 8, Take-Two, the publisher of Grand Theft Auto video games, boosted its earnings outlook after the new release Red Dead Redemption sold more than 5 million copies.

Take-Two said it will post a full-year loss, excluding certain items, of 10¢ to 30¢ a share, narrower than the 39¢ loss projected by 17 analysts surveyed by Bloomberg. The company said it will report a third-quarter loss of 10¢ to 20¢ a share, compared with the 40¢ loss estimated by analysts.

The company also reported second-quarter results, with net income of $16.8 million, or 20¢ a share, compared with a loss of $10.1 million, or 13¢, a year earlier. Sales in the period ended April 30 rose 54 percent, to $268 million.

In a posting on the S&P MarketScope service, Yin said the company's second-quarter EPS of 20¢ topped his estimate of 7¢ EPS; Take-Two's revenue from continuing operations of $268 million were $12 million below his forecast.

The analyst narrowed a loss per share estimate for 2010 to 26¢ from a loss of 65¢.

"We think the company is executing well by focusing on top-rated games," Yin wrote. "However, we see a difficult sales environment in which success of one game is coming at the expense of other titles."

Texas Instruments: Credit Suisse equity analyst John Pitzer maintained an outperform rating and $32 price target on shares of Texas Instruments (TXN) on June 9.

On June 8, Texas Instruments, the second-biggest U.S. chipmaker, said sales and profit will be at the upper end of earlier targets, buoyed by demand for industrial machinery.

Second-quarter profit will be 60¢ to 64¢ on sales of at least $3.45 billion, the Dallas company said today in a statement. That compares with April predictions of 56¢ to 64¢ a share on revenue of at least $3.31 billion.

In a note, Pitzer said demand for the company's products continues to be driven by strength in sales to industrial customers and growth across its business segments, particularly analog and embedded chips.

He maintained estimates for calendar 2010 of $13.58 billion in revenue and EPS of $2.35, and for calendar 2011 of $13.96 billion and $2.50, respectively.

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