Stock Picks: Apple, Johnson Controls, Netflix, Shuffle Master
Apple Inc.: Standard & Poor's equity analyst Clyde Montevirgen reiterated a strong buy rating and $325 price target on shares of Apple (AAPL) on June 30.
On June 29, Bloomberg News reported that Verizon Wireless, the largest U.S. mobile-phone company, will start selling Apple's iPhone next year, ending AT&T's (T) exclusive hold on the smartphone in the U.S., citing two people familiar with the plans.
The device will be available to customers in January, according to the people, who declined to be named because the information isn't public. Natalie Kerris, an Apple spokeswoman, and Jeffrey Nelson, a Verizon Wireless spokesman, declined to comment.
In a posting on the S&P MarketScope service, Montevirgen said that "although we largely agree" with the report, "we are a bit more cautious about a launch date." The analyst said that opening up the iPhone to Verizon Wireless "would be a very positive catalyst" for Apple stock, as the company would more than double its available market in the U.S. for its iPhone business. "We also think such a move would increase its opportunities in the enterprise markets, among other benefits," the analyst said.
Johnson Controls: Kaufman Bros. reinstated coverage on shares of Johnson Controls (JCI), the largest publicly traded U.S. auto-parts maker, with a buy recommendation and a $37 price target on June 30.
In a note, equity analyst Jeffrey Bencik wrote that over the past two years, Johnson Controls has closed 31 plants and reduced employee head count by approximately 12.5 percent in order to match a lower level of automotive demand. "We believe the company is now breakeven in the auto segment at a production level of only 10 million units in North America," Bencik said, and with his expectation of 13 million to 14 million units in 2011, "the company should see significant operating leverage and improved profitability."
The analyst said he believes the company is in "a much lower risk position then it was two years ago as it rightsized the business" for a significantly lower auto production schedule.
Netflix: Stifel Nicolaus equity analyst George Askew maintained a hold rating on shares of Netflix (NFLX) on June 30.
On June 29, Hulu.com, the website owned by three of the biggest U.S. broadcast networks, announced a paid service called Hulu Plus that provides the current and past seasons of programs on computers, cell phones, and TV sets.
The service costs $9.99 a month and offers such shows as Grey's Anatomy and The Office from ABC, NBC, and Fox, three of Hulu's owners, on select Web-connected Samsung TVs and on Apple's iPhone and iPad devices on Wi-Fi networks, Hulu said on its website.
Hulu, which lets computer users watch previously broadcast shows for free and sells advertising, is making the paid service available on TV sets and mobile devices to draw bigger audiences and garner more revenue for its Internet programming. Hollywood studios are seeking new sources of revenue without upsetting relationships with cable and satellite TV providers.
In a note, Askew said he believes Hulu Plus represents "a competitive challenge" to Netflix. He noted that accelerating subscriber growth at Netflix was fueled by popularity of its streaming video service, which is included with its DVD-by-mail service.
The analyst said he believes many recent Netflix subscribers primarily use only the streaming service, and they may view the Hulu offering as a substitute for Netflix, potentially affecting the company's subscriber growth rate.
Shuffle Master: Morgan Joseph initiated coverage on shares of Shuffle Master (SHFL) with a buy rating and a $12 price target on June 30.
In a note, equity analyst Justin Sebastiano said Shuffle Master is the dominant player in automated card shufflers and specialty table games.
"We believe the company's renewed emphasis on leasing [its gaming equipment] is imperative to its success," Sebastiano wrote.
"In addition, we believe there are still potential savings in the cost structure, mostly on the manufacturing side of the business, as well as lower interest expense due to further debt reduction," the analyst said.
Sebastiano estimates Shuffle Master will generate revenue of $189 million in fiscal 2010 (ending October), a 6 percent increase from the prior year, driven by casino openings in Singapore and the implementation of live table games in casinos in Pennsylvania, Delaware, and West Virginia. He expects fiscal 2010 adjusted earnings per share EPS to increase 34 percent, to 44¢. For fiscal 2011, he estimates revenue of $202 million, a 7 percent increase, and EPS of 53¢, a 20 percent increase.