Stock Picks: Best Buy, Hawaiian Holdings,, Starwood Hotels

Best Buy: Credit Suisse equity analyst Gary Balter reiterated an outperform rating on shares of Best Buy (BBY) on June 16. He lowered a price target on the shares to $48 from $56.

On June 15, the world's largest consumer-electronics retailer reported first-quarter profit that rose less than analysts projected as some U.S. shoppers bought fewer games and movies. The shares fell the most in six months.

Profit in the quarter ended May 29 climbed to $155 million from $153 million, or 36¢ a share, a year earlier, Best Buy said. Analysts on average projected 50¢, according to estimates compiled by Bloomberg. Sales at U.S. stores open at least 14 months rose 1.9 percent, trailing the median estimate of 3.5 percent in a Bloomberg survey of five analysts. U.S. comparable-store sales of televisions, music, films, and gaming merchandise fell, eating into gains from notebook computers and mobile phones. Selling, general, and administrative costs climbed 12 percent, eroding profit.

Total comparable-store sales rose 2.8 percent, with an international gain of 6.3 percent.

The company also reiterated that full-year profit probably will be $3.45 to $3.60 a share.

"Best Buy remains the stock with the most promise relative to its competitive positioning, valuation, and cash flow," Balter wrote in a note. "However, each quarter, or at least every few quarters, the stock gets derailed by some negative surprise. … Last year it was gross margins." Balter said that in the most recent quarter the company "delivered on gross margin but fell well short on expense growth and on comparable store sales."

The analyst said he believes "the overriding issue" for Best Buy investors is whether the company remains a victim of competitive and macroeconomic headwinds beyond its control.

"Maybe we are a glutton for punishment, but we can't escape from the cheap valuation, the successful efforts to improve gross margin, the trust in management that they will indeed moderate expense growth, and most important, our belief that an improving economy and fewer competitors will lead to better sales later in the year," Balter wrote.

Hawaiian Holdings: Jesup & Lamont equity analyst Helane Becker reiterated a buy rating and $11 price target on shares of airline operator Hawaiian Holdings (HA) on June 16.

In a Form 8-K filing on June 15, the company said it expects passenger revenue per available seat mile (ASM) in the 2010 second quarter to improve by 6.5 percent to 8.5 percent, compared with the year earlier period, below expectations of an 8 percent to 11 percent increase it indicated in an Apr. 22 conference call. It also expects cost per available seat mile (excluding fuel) to increase 3.5 percent to 5.5 percent, below its earlier indication of a 5 percent to 8 percent increase. It also forecast its average jet fuel cost per gallon, which excludes the impact of the company's jet fuel hedging program, to be $2.28 to $2.33.

In a note, Becker said she was reducing a second-quarter earnings per share (EPS) estimate to 21¢ from 23¢, fully taxed, vs. 53¢ (untaxed) one year earlier. For 2010, she estimates EPS of $1.05 (fully taxed) vs. $1.46 (untaxed), down from a prior estimate of $1.07. For 2011, she forecasts EPS of $1.38, helped by a pending additional route to Tokyo Haneda Airport. Goldman Sachs equity analyst Ingrid Chung raised a rating on shares of (PCLN) to buy from neutral on June 16. She raised a price target on the shares to $240 from $230.

In a note, Chung said she changed the rating on the second-biggest online travel agency as she believes the recent 30 percent decline in the stock "is an overreaction" to a 10 percent devaluation in the euro, which she said impacts "roughly 50 percent" of the company's revenue and a majority of its advertising spending.

Chung said she thinks Priceline's "secular growth story," based on its 35 percent online penetration for leisure bookings in Europe vs. 60 percent in the U.S. and a high degree of fragmentation in the European hotel industry, should outweigh the euro devaluation and an expected contraction in European consumer spending.

Starwood Hotels & Resorts Worldwide: Soleil Securities on June 16 raised a rating on shares of Starwood Hotels & Resorts Worldwide (HOT) to buy from hold and increased a price target on the shares to $57 from $55.

With the stock down from late-April highs and evidence of accelerating year-over-year growth in revenue per available room, or RevPAR, equity analyst Jake Fuller said in a note he sees the stock as "attractive" ahead of the company's second-quarter earnings per share release on July 23 and for the longer term "against a favorable supply-demand picture." He said he expects "upward pressure" on analyst consensus estimates for the owner of the St. Regis and W hotel brands, with "a quicker recovery in RevPAR" which should help boost Ebitda for company-owned hotels to more than $550 million in 2013 from $265 million in 2009.

He also noted that free cash flow from the company's timeshare operations is up "sharply."

The analyst raised EPS estimates for the second quarter to 27¢, from 25¢, and for 2010 to 95¢ from 88¢.

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