Stock Picks: Apple, Halliburton, Hasbro
Apple: Janney Montgomery Scott equity analyst William Fearnley maintained a buy rating on shares of Apple (AAPL) on Oct. 19. He raised a fair value estimate on the shares to $385, from $370.
On Oct. 19, shares in Apple, maker of the iPhone, fell the most in five months after the company's profit forecast and sales of the iPad tablet computer missed analysts' estimates. Apple dropped 6.50, or 2.0 percent, to 311.50 at 11:50 a.m. New York time in Nasdaq trading. Earlier the shares slid as much as 5.7 percent, to 300.02, their biggest decline since May.
After the close of trading on Oct. 18, Apple reported that its fourth-quarter profit rose 70 percent to $4.31 billion, or $4.64 a share, on sales of $20.3 billion.
Apple predicted profit of $4.80 a share for this quarter, short of the $5.03 average of estimates compiled by Bloomberg. Revenue this quarter will be about $23 billion, Apple said. Analysts had predicted sales of $22.3 billion.
While Apple's profit climbed to a record last quarter, Chief Executive Officer Steve Jobs said the company will save its cash for deals as it repels threats from Google (GOOG) and Research In Motion (RIMM).
Earnings helped lift Apple's cash and investments to more than $50 billion. "We'd like to continue to keep our powder dry," Jobs—joining an earnings conference call for the first time in two years—said on Oct. 18 when asked whether Cupertino (Calif.)-based Apple would use the cash for a stock buyback or dividend. "We strongly believe that one or more very strategic opportunities may come along."
Gross margin, the percentage of sales left after deducting production costs, will be about 36 percent, compared with 36.9 percent last quarter and 41.8 percent a year before that, Chief Financial Officer Peter Oppenheimer said on the call.
Apple sold 4.19 million iPad tablet computers last quarter. The results also included the first full quarter of sales for iPhone 4, released in June. Apple sold 14.1 million iPhones and 3.89 million Macintosh computers.
In a note, Fearnley said Apple gave "solid" earnings per share (EPS) and revenue guidance for the first quarter of fiscal 2011 (ending September). The analyst said that while he was lowering his gross margin estimates due to iPhone-component cost changes, he was increasing his revenue estimates as "the iPhone should remain strong and the iPad will gain momentum as well".
Fearnley raised a fiscal 2011 earnings per share (EPS) estimate to $18.80, from $18.36, and established a fiscal 2012 estimate of $21.48.
He said his new fair value estimate of $385 implied a price-to-earnings multiple of 18 times his new fiscal 2012 EPS estimate, above the average of Apple's peer group "because we like the revenue and earnings growth metrics."
Halliburton: Miller Tabak equity analyst Kevin Simpson maintained a buy rating and $45 price target on shares of Halliburton (HAL) on Oct. 19.
On Oct. 18, Halliburton, the world's second-largest oilfield-services provider, declined 4.8 percent after profit fell in all regions outside of North America, disappointing investors' expectations for global business.
Halliburton, which reached a two-year high last week, fell 1.73 to 34.09 at 4 p.m. in New York Stock Exchange composite trading. Operating income in the third quarter dropped 21 percent in Latin America from a year earlier.
The decline was 31 percent in a region that includes Europe, Africa, and the former Soviet Union, and 52 percent in the Middle East and Asia.
Third-quarter net income climbed to $544 million, or 60¢ a share, from $262 million, or 29¢, a year earlier, Houston-based Halliburton said in a statement on Oct. 18. Excluding such items as a tax gain related to discontinued operations, profit was 58¢ a share, 2¢ higher than the average of 33 analysts' estimates compiled by Bloomberg.
Revenue surged 30 percent from a year earlier, to $4.67 billion in the third quarter. Operating income in North America rose to $573 million, from $37 million in the year-earlier quarter. Onshore projects more than made up for a slowdown in the Gulf of Mexico.
The number of active U.S. onshore rigs averaged 1,587 in the third quarter, a 71 percent increase from a year earlier, as energy companies looked for alternatives to offshore drilling. Halliburton is one of the largest providers in North America of pressure pumping, which uses materials such as water and sand to fracture rocks and help gas or oil to flow. Producers use this technology to drill in shale formations.
In a note, Simpson said he was raising EPS estimates to $1.98, from $1.90, for 2010 and to $2.75, from $2.45, for 2011, following the better-than-expected third-quarter EPS from operations and "a relatively positive outlook for key HAL markets" on the company's conference call.
Simpson said that the Oct. 18 decline in the shares came as results were below "the leading-edge expectations" of analysts.
"We would be buyers into this pullback and continue to believe that the shares are underpricing the company's earnings growth prospects," he said.
Hasbro: Morgan Joseph equity analyst Jeffrey Blaeser lowered a rating on shares of Hasbro (HAS) to hold, from buy, on Oct. 19.
On Oct. 18, Hasbro, the world's second-largest toymaker, rose the most since June in New York trading after its third-quarter profit gain surpassed analysts' estimates, helped by sales of preschool products and games.
Hasbro advanced 3.8 percent after saying net income rose to $155.2 million, or $1.09 a share, in the quarter ended Sept. 26. Analysts on average had projected $1.04, according to a Bloomberg survey.
Hasbro, based in Pawtucket, R.I., advanced 1.73, to 46.81, at 4:01 p.m. in New York Stock Exchange composite trading, its largest gain since June 24. The shares have climbed 46 percent this year.
During the quarter, Hasbro has made up for the absence of Transformers tie-ins with gains in games such as Monopoly and preschool toys such as the Mr. Potato Head brand, featured in Toy Story 3, the highest grossing film in the U.S. this year. Sales climbed 2.7 percent to $1.31 billion, also surpassing projections. Last year, Hasbro's third-quarter profit was $150.4 million, or 99¢ a share.
Hasbro expects a "robust" holiday shopping season, with inventories rising from last year so the toymaker can meet demand, Chief Executive Officer Brian Goldner said in a conference call. The Hub, Hasbro's joint venture children's television network with Discovery Communications, began broadcasting on Oct. 10 and has been well received by consumers, said Goldner, 47.
"With ongoing core product gains, a strong projected entertainment lineup, and expectations that its television joint venture will turn EPS neutral in 2011, we continue to view Hasbro's future growth prospects favorably," Blaeser wrote in a note. He said that he believes the shares deserve a premium price-to-earnings multiple vs. those of the company's peers.
"However … we believe the premium is currently reflected in the shares and thus we are reducing our rating," he wrote.