Stock Picks: Allstate, Time Warner Cable, Tractor Supply
Allstate: Soleil Securities equity analyst Harry Fong maintained a buy rating and $38 price target on shares of Allstate (ALL), the largest publicly traded U.S. home and auto insurer, on Sept. 30.
"Since the third quarter came and went without a major hurricane making landfall, we suspect many analysts [who] include a small provision in their [earnings] estimate for hurricanes will revise their earnings estimates higher," Fong wrote in a note. He said his Allstate estimate includes a provision for "average" weather and, at $1.07, was "considerably" higher than the current 80¢ per share consensus estimate.
"We continue to believe there is further upside for ALL shares due in part to anticipated upward revisions to third-quarter estimates and more importantly to management's commitment to returning the homeowners' business to one that will can earn a 15 percent" return on equity over time, the analyst said.
Time Warner Cable: Kaufman Brothers equity analyst Todd Mitchell maintained a buy rating and $66 price target on shares of Time Warner Cable (TWC), the second-largest U.S. cable company, on Sept. 30.
In a note, Mitchell said he believes "the fundamental outlook for TWC's financial yields remains intact" and he expects management to announce "a material increase" in its share repurchase efforts, which should have a positive impact on its share price.
Mitchell said he believes Time Warner Cable faces "a particularly difficult competitive dynamic" in its two largest markets: New York City, where Verizon Communications (VZ) has been aided by the elimination of a customer commitment period on new contracts; and Los Angeles, where DirecTV (DTV) has made an aggressive marketing push that is translating into market share gains.
For the third quarter, the analyst forecasts total revenue of $4.65 billion, earnings before interest, taxes, depreciation and amortization (Ebitda) of $1.65 billion, and earnings per share (EPS) of 85¢. For 2010, he forecasts total revenue of $18.64 billion and Ebitda of $6.8 billion.
"We still believe … that the company's relatively modest valuation makes it an attractive investment alternative," Mitchell said.
Tractor Supply: Janney Montgomery Scott equity analyst David Strasser maintained a neutral rating on shares of Tractor Supply (TSCO), the operator of 967 farm-equipment stores, on Sept. 30. He has a $43 fair value estimate on the shares.
In a note, Strasser said Tractor Supply is "an exciting long-term growth story, in an industry lacking growth." He said that after a meeting with company management, he was more confident that near-term trends remain "solid."
"Our enthusiasm for the stock is driven by a structural margin improvement story, solid long-term store growth prospects, a variety of merchandising and marketing initiatives, and a compelling cash-flow story," he said.
Strasser raised third-quarter estimates for comparable-store sales growth to 4 percent from 3 percent. He raised EPS estimates for the third quarter to 38¢ from 34¢, for the fourth quarter to 57¢ from 53¢, and for 2011 to $2.40 from $2.21.
"We believe it is more prudent to wait for a pullback [in the shares] as valuation is rich and expectations are high," the analyst wrote.
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