Stock Picks: Bed Bath & Beyond, Goldman Sachs, Red Hat
Bed Bath & Beyond: Credit Suisse equity analyst Gary Balter maintained a neutral rating and $50 price target on shares of home-furnishings retailer Bed Bath & Beyond (BBBY) on Sept. 23.
On Sept. 23, Bed Bath & Beyond climbed the most in two months in Nasdaq trading after forecasting a third-quarter profit that may exceed some analysts' estimates and projecting faster full-year growth. Earnings in the quarter that began on Aug. 29 may range from 61¢ to 65¢, the Union (N.J.)-based company said in a statement after the markets closed on Sept. 22. Analysts surveyed by Bloomberg estimated earnings at 64¢, on average. Full-year earnings per share may advance by 20 percent, compared with a June projection of 15 percent, the company said.
The company is "cautiously optimistic" about the second half, Chief Executive Officer Steven Temares told analysts during a Sept. 22 conference call. He said unemployment and the economic outlook may "continue to pressure consumers and affect their spending."
The shares increased $1.69, or 4 percent, to $43.74 at 10:57 a.m. in Nasdaq Stock Market trading on Sept. 23, after advancing as much as 4.6 percent, the biggest intraday jump since July 22. The stock had gained 9.1 percent this year before today.
In a note, Balter said Bed Bath & Beyond reported a "very solid" second quarter, "marking the last of the relatively easy" quarterly comparisons since competitor Linens 'n Things shuttered its stores after filing for bankruptcy in 2008.
"Despite four quarters of upside, this stock over that time period is up just moderately, reflecting concerns over the more difficult upcoming comparisons, as well as investor frustration with the cash hoard that this management team continues to sit on," Balter said. "We remain surprised that this superbly run retailer, one with significant insider ownership, would shy away from supporting its stock or paying out some of that cash before that option becomes more expensive in 2011."
The analyst raised an earnings per share (EPS) estimate for fiscal 2011 (ending February) to $2.77, from $2.69.
"Unless BBBY changes its balance sheet management, we see better near-term opportunities within our group at this time," Balter said.
Goldman Sachs Group: Standard & Poor's equity analysts Robert McMillan and Royal Shepard reiterated a hold rating and $162 price target on shares of Goldman Sachs Group (GS) on Sept. 23.
"As expected, industry trading volumes slowed this summer as investors assessed the outlook for global economies," the analysts wrote in a posting on the S&P MarketScope service. "We think market volatility will continue, although recent September trading results are more encouraging."
McMillan and Shepard said they think backlogs of mergers and acquisition deals are improving, while demand for the company's restructuring advice remains strong. They said they expect Goldman to keep "tight" control of variable compensation costs. They kept a 2010 EPS estimate of $14.55.
Red Hat: Capstone Investments equity analyst James Gilman maintained a sell rating and $24 price target on shares of Red Hat (RHT) on Sept. 23.
Shares of Red Hat rose 11 percent to $40.64 on Sept. 23 after the largest seller of the Linux operating system reported second-quarter profit of 19¢ a share, beating the average analyst estimate by 2.7 percent.
Gilman said in a note that revenue and EPS were above his estimates of $211.4 million and 18¢. He noted that billings of $233 million were also above his expectations of $219 million; cash flow from operations was $64 million vs. his $48 million estimate.
The analyst said Red Hat kept its guidance for cash flow from operations unchanged even though it raised revenue and net income guidance. "All things being equal, an increase in net income would mean that cash flow from operations should increase by the same amount," he said. "We think the unchanged cash flow guidance implies slowing billings growth."