Stock Picks: Berkshire Hathaway, Google, WD-40

Berkshire Hathaway: Stifel Nicolaus equity analyst Meyer Shields on July 8 lowered a rating on shares of Berkshire Hathaway (BRK/A; BRK/B), the conglomerate headed by billionaire Warren Buffett, with a $104,000 fair value estimate on the company's Class A shares.

In a note, Shields said the rating change came as "our weak macroeconomic outlook implies poor [2010 second-half] earnings."

"We think declining consumer confidence will slow consumer spending, as employment very slowly recovers," he wrote. Shields said that "a shrinking appetite for increased public spending" should limit the size of any future economic stimulus packages, while a potential increase in oil prices above $85 a barrel could further affect consumers' discretionary expenditures.

Apart from its operating units' exposure to economic weakness, its shares face a "double whammy," Shields said, as its equity portfolio and derivative positions expose it to additional pressure on its book value. "Investors' focus on Berkshire's book value for valuation [implies] that its shares could outpace broader market's declines," he wrote.

Berkshire's year-to-date outperformance vs. the S&P 500 index "is nearing an apex that seems poised for a correction based on the shares' history," Shields said.

The analyst lowered earnings per share (EPS) estimates on the Class A stock for 2010 to $5,685, from $5,764, and for 2011 to $6,097, from $6,241.

Google: Benchmark Co. equity analyst Clayton Moran reiterated a buy rating on shares of Google (GOOG) on July 8, with a price target of $600.

In a note, Moran stated that Google, owner of the world's most-used search engine, is scheduled to report second-quarter results on July 15. He said he expects sustained momentum in the company's search business and strength from its YouTube video Web site. He forecasts net revenue of $4.9 billion and adjusted EPS of $6.18.

Moran said that larger advertisers appear to have increased spending and that he anticipate the recent acceleration of growth will continue through the second quarter. He said his 2010 adjusted EPS estimate of $27.00 implies 16 percent year-over-year growth.

"Google has no debt, $82 per share in cash, and should generate [more than] $29 per share in 2010 free cash flow," the analyst said. "Given clear signs of economic improvement and strength in its core search business, we believe Google's stock is oversold."

Tractor Supply: On July 8, Morgan Keegan equity analyst John Lawrence kept an outperform rating on shares of Tractor Supply (TSCO), the operator of 967 farm-equipment stores.

On July 7, Tractor Supply boosted its forecast for the full year, saying EPS will be $4 to $4.10. That's more than the average analyst estimate of $3.73, according to a Bloomberg survey.

In a note, Lawrence said the company expects second-quarter EPS of $2.03 to $2.05, well above his $1.61 estimate. He said net sales for the quarter rose 13 percent year-over-year, while comparable-store sales rose 6.1 percent, driven by favorable weather, effective markdown management, and strong results from the consumable and edible goods categories.

Lawrence noted that the company raised its 2010 EPS guidance on 2.5 percent to 3.5 percent higher comparable-store sales. He hiked his $3.60 2010 EPS estimate to $4.03 on 3.5 percent higher comparable-store sales and his $4.25 2011 EPS view to $4.69.

The analyst said he finds the stock "undervalued" given current sales trends and a 2010 earnings growth rate that could top his revised 28 percent estimate.

WD-40: Standard & Poor's equity analysts Loren Braverman and Thomas Graves raised a rating on shares of WD-40 (WDFC) to hold from sell on July 8. The price target on the shares was increased to $33 from $31.

On July 7, the maker of lubricants and hand soap reported third-quarter earnings per share of 54¢, above the average estimate of Wall Street analysts of 42¢. The company said it foresees adjusted EPS for fiscal 2010 (ending August) of $2.05 to $2.14, vs. its Apr. 7 forecast of $1.92 to $2.01.

In a posting on the S&P MarketScope service, the analysts said WD-40's third-quarter EPS of 54¢ exceeded S&P's estimate by 14¢, with sales growth of 20 percent "much higher than we anticipated," especially the increases in the Europe and Asia-Pacific regions.

The analysts raised a fiscal 2010 EPS estimate to $2.15, from $2.07, and a fiscal 2011 projection to $2.25, from $2.16. They cited WD-40's "recent history of positive EPS surprises" in their decision to raise the target price and noted the stock's indicated dividend yield of 2.9 percent.

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