Stock Picks: Apple, Applied Materials, Medtronic

Wall Street analysts offer buy, sell, or hold opinions on stocks in the news on Aug. 25

Apple: Janney Montgomery Scott equity analyst William Fearnley Jr. maintained a buy rating and $335 fair value estimate on shares of Apple (AAPL) on Aug. 25.

In a note, Fearnley said that in a monthly survey of Apple resellers, contacts reported their sales of Mac computers have been in line or above expectations for July. Sales of iPods remain steady and in line with expectations, and the Touch and Nano remain best-selling models, he said.

Apple's iPad tablet computer continues to sell well, the analyst said, as channel inventories and availability have improved "dramatically." Fearnley noted that more professional users are buying the iPad and choosing the 3G model, which aids average selling prices and margins. He raised unit sales estimates for the iPad for fiscal 2010 (ending September) to 7.9 million, from 7.7 million, and for fiscal 2011 to 19.4 million, from 17.9 million.

Fearnly said sales of the new iPhone remain "strong." He raised unit sales estimates on the iPhone for fiscal 2010 to 37.2 million, from 37.0 million, and for fiscal 2011 to 44.8 million, from 44.5 million.

The analyst raised earnings per share (EPS) estimates for fiscal 2010 to $14.55, from $14.49, and for fiscal 2011 to $17.04, from $16.76.

Applied Materials: Credit Suisse equity analyst Satya Kumar maintained a neutral rating and $13.50 price target on shares of Applied Materials (AMAT) on Aug. 25.

Applied Materials, the world's largest producer of chipmaking equipment, announced its new Eterna FCVD (Flowable Chemical Vapor Deposition) system on Aug. 24. Eterna FCVD is the first and only film deposition technology capable of electrically isolating the densely packed transistors in 20nm-and-below memory and logic chip designs with a high-quality dielectric film, the company said in a statement, completely filling gaps between the transistors from the bottom up.

The process delivers a dense, carbon-free dielectric film at up to half the cost of spin-on deposition methods, the company said.

"The announcement by itself, while very interesting technically, does not appear material enough to drive immediate upside to the stock," Kumar said in a note.

The analyst maintained estimates for calendar year 2010 of $10 billion in revenue and 96¢ of EPS and for calendar year 2011 of $10.3 billion in revenue and $1.07 of EPS.

Medtronic: Miller Tabak equity analyst Les Funtleyder raised a rating on shares of Medtronic (MDT) to neutral from sell on Aug. 25. He kept a price target of $31 on the shares.

On Aug. 24, Medtronic, the world's biggest maker of heart devices, fell the most in more than 21 months in New York trading after lowering its profit forecast, citing slowing sales for defibrillators and spinal products.

Medtronic expects fiscal 2011 earnings of $3.40 to $3.48 a share, down from an earlier forecast of $3.45 to $3.55, the Minneapolis company said in a statement. Revenue for the fiscal first quarter ended July 30 fell 4.1 percent, to $3.77 billion. Adjusted earnings of 80¢ a share missed by 1¢ the average estimate of 19 analysts surveyed by Bloomberg.

Revenue dropped for Medtronic's spinal and heart devices, its top two units, partly because of currency exchange rates and a shorter selling season, Chairman and Chief Executive William Hawkins said in the statement.

"The biggest surprise was the magnitude of the market slowdown in the spine and heart-rhythm device businesses," Hawkins said in a conference call with analysts. The slowing in the two businesses "escalated in June through July," he said.

In a note, Funtleyder said Medtronic's results "would have been worse if it were not for some heroic cost-cutting efforts."

Funtleyder said his checks with industry sources indicate pricing pressure has picked up in the medical technology industry—including Medtronic—as a result of deteriorating patient utilization rates.

"Compounding the earnings miss is that this occurred in the context of a prior revision where the company 'lowered' guidance to reflect an additional week of revenue in the prior period just six weeks ago," Funtleyder wrote. "Given this chain of events, management credibility … is now an open question."

Funtleyder lowered his fiscal 2011 forecast for EPS to $3.44, from $3.50, and for revenue to $16.1 billion, from $16.8 billion.

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