Stock Picks: Best Buy, E*Trade, MasterCard

Wall Street analysts offer buy, sell, or hold opinions on stocks in the news on Sept. 15

Best Buy: Janney Montgomery Scott equity analyst David Strasser maintained a buy rating and $50 fair value estimate on shares of Best Buy (BBY) on Sept. 15.

On Sept. 14, Best Buy reported second-quarter earnings that beat analysts' estimates as consumers bought more smartphones. The company also raised its annual profit forecast.

Earnings advanced 61 percent, to $254 million, or 60¢ a share, the world's largest consumer-electronics retailer said in a statement. That compared with the 44¢ average of estimates compiled by Bloomberg. Profit for the year will be at least $3.55 a share, compared with a previous forecast of at least $3.45.

Rising sales of mobile phones in the U.S. and overseas, where revenue climbed about 6 percent, boosted Best Buy's gross margin more than some analysts had expected. (Best Buy is headquartered in Richfield, Minn.) Gross margin, the fraction of sales remaining after subtracting the cost of goods sold, widened to 25.7 percent, from 24.4 percent a year earlier. Lower spending on promotions and customer loyalty programs boosted the margin, Best Buy said.

Total revenue rose 2.9 percent, to $11.3 billion. A year earlier, second-quarter profit was $158 million, or 37¢ a share.

In a note, Strasser said he remains "relatively bullish" that the company's sales will be stronger relative to the broader retail sector as strong product cycles in portable devices and TVs combine to "surprise to the upside."

Best Buy "is one of the cheapest large-cap retail stocks, yet it [has] a significant earnings cushion" from both higher gross margin and lower selling, general, and administrative costs, the analyst said.

Strasser raised his estimate of fiscal 2011 (ending February) earnings per share (EPS) to $3.59, from $3.27.

E*Trade Financial: Standard & Poor's equity analyst Royal Shepard kept a hold rating and $16 price target on shares of E*Trade Financial (ETFC) on Sept. 15.

The New York-based online brokerage said on Sept. 15 that daily average revenue trades, or DARTs, for August were 123,219, 5 percent lower than July and a 36 percent decrease from a year earlier. E*Trade added 24,927 gross new brokerage accounts, with nearly 2.7 million brokerage accounts at month end—a decrease of 1,416 from July. Total accounts ended the month at approximately 4.2 million.

In a posting on the S&P MarketScope service, Shepard said E*Trade's August trading volume that "somewhat weaker" than his forecast. He noted that client accounts remained stable and that total customer assets at the end of August were about 5 percent above year-earlier levels. He added that total delinquent loans have declined 6 percent so far this quarter.

Shephard kept his 2010 EPS estimate at 13¢.

MasterCard: UBS Securities equity analyst Jason Kupferberg kept a buy rating on shares of MasterCard (MA) on Sept. 15 and stated that earnings-per-share growth will average at least 20 percent through 2013.

In a regulatory filing before a meeting with analysts, MasterCard, which is based in Purchase, N.Y., said that annual operating margins will be at least 50 percent and net revenue will increase 12 percent to 14 percent.

MasterCard previously said it expected annual margin expansion of 3 to 5 percentage points from 2009 through 2011 and average annual net income growth of 20 percent to 30 percent. The company said on Sept. 14 its board approved a share buyback of up to $1 billion.

MasterCard and larger rival Visa (V), based in San Francisco, have declined this year as U.S. lawmakers approved caps on fees the companies charge merchants for debit-card transactions. The rules, being developed by the Federal Reserve, won't take effect until the middle of next year, and both companies continue to benefit from a consumer shift from cash and checks to electronic payments.

In a note, Kupferberg said he believes Wall Street has been looking for more cash to be returned to shareholders by the company, so the announcement of a $1 billion stock buyback is positive for sentiment toward the stock. The analyst said he thinks investors "will appreciate this vote of confidence" in the stock amid ongoing regulatory uncertainty surrounding the industry.

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