Stock Picks: BP, Expedia, L-3 Communications, Parametric Technology

BP Plc: Oppenheimer & Co. equity analyst Fadel Gheit maintained an outperform rating on shares of BP Plc (BP) on June 14.

BP's board was to meet June 14 to discuss whether to cut or defer its second-quarter dividend payment following the Gulf of Mexico oil spill.

A decision on the dividend may not be reached at the meeting, BP spokesman Robert Wine said in a telephone interview on June 12. "All options are being considered," he said. "No decision has been taken."

In a note, Gheit said he believes suspending the dividend could reduce political pressure and public anger in the U.S. at BP, and enhance the company's financial flexibility to meet the high costs of cleanup and compensation in connection with oil spill. Gheit said suspending the dividend frees up more than $10.5 billion annually for BP.

The analyst said he thinks BP has financial capacity to survive the current crisis, although excessive punitive damages "could put its future at risk." He said he expects the disaster to have a "profound impact, not only on BP, but on the oil industry, the Gulf of Mexico region, government policies, and U.S. politics."

Expedia Inc.: Standard & Poor's equity analyst Scott Kessler reiterated a buy rating on shares of online travel agency Expedia Inc. (EXPE) on June 14.

On June 14, the company's TripAdvisor unit announced the launch of its TripAdvisor Trip Friends feature, which allows travelers to get advice from their Facebook friends on TripAdvisor to help plan vacations.

In a posting on the S&P MarketScope service, Kessler noted that Trip Friends will leverage the popular Cities I've Visited application on Facebook.

"TripAdvisor is already a market-leading brand and business, with more than 34 million monthly visitors," Kessler wrote. The news about Trip Friends "underscores the value of TripAdvisor, which in 2009 generated $352 million in revenues, 18 percent growth and strong profitability in our view," he said.

Kessler said he thinks TripAdvisor could be worth about one-third of Expedia's market value, or approximately $2 billion.

L-3 Communications Holdings Inc.: Morgan Joseph equity analyst Michael French maintained a hold rating on shares of L-3 Communications Holdings Inc. (LLL) on June 14.

On June 10, the U.S. Air Force said a unit of the company is facing a criminal probe into use of a military computer network to conduct e-mail surveillance of its workers and those of the government and other contractors.

The unit, which managed the network, copied and stored e-mail traffic without the knowledge of the government or the workers, helping the company collect information relevant to competitions on which it wanted to bid, according to a June 3 memo by the Air Force deputy general counsel's office. L-3 "admitted to conducting the surveillance," according to the memo, which was provided by an Air Force spokeswoman, Lieutenant Colonel Karen Platt. The company checked e-mails "willfully and deliberately in an attempt to discover whether its employees had shared its information with another contractor," the memo said.

The memo detailed why the Air Force acted to temporarily bar L-3's Special Support Programs Division from new federal contracts or orders. New York-based L-3 disclosed the suspension on June 9 in a filing that cited "inappropriate use" of an e-mail system without mentioning the criminal probe. L-3 "is cooperating fully with the government and has no other comment at this time," Jennifer Barton, a spokeswoman, said in an e-mail.

In a note, French said that L-3 may not be able to participate in the recompetition for the $5 billion, 10-year Special Operations Forces Support Activity contract.

"Management had been bullish on the prospects of L-3 prevailing in the new competition for reasons that remained unclear," French wrote. "We had been concerned about SOFSA and it was one of the reasons for our cautious stance on the shares."

French said he thinks the announced restrictions on L-3's activities are likely to make a successful effort in the SOFSA recompetition "remote, if not impossible."

The analyst said that depending on the severity of the alleged infraction, the Pentagon could decide to widen the punishment, which is currently limited to the restriction of one division at L-3. "We do not know whether this will happen or what the timing of the decision may be," French wrote.

Parametric Technology Corp.: Janney Montgomery Scott equity analyst Sasa Zorovic raised a rating on shares of Parametric Technology Corp. (PMTC) to buy from neutral on June 14, with a $20 fair value estimate.

"The company has industry leading technology in advanced [computer-aided design] and [product life-cycle management] software, is taking [market] share, [and] has committed itself to making improvements in the areas that its products should be better (primarily the user experience)," Zorovic wrote in a note. He said he views the upcoming promotion of company President and Chief Operating Officer James Heppelmann to chief executive officer as "a positive." He noted that end markets served by Parametric such as medical devices, aerospace, and manufacturing "are performing well."

Zorovic said his remaining concerns include the departure of Chief Financial Officer Neil Moses; the company's "heavy" exposure to Europe; and "strong" competition from Dassault Systèmes SA (DASTY), Autodesk Inc. (ADSK), and Siemens AG (SI).

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