Let’s take a look at analysts’ morning notes.
- Some near-term disappointment on Broadcom (BRCM) but long-term opportunity remains: Investor reaction to Broadcom’s below consensus GM guidance on acquisition and warranty costs and operating expense increases on inline revenues is apt to be immediately negative. We are not inclined to dissuade investors from this reaction, we expect that the shares will recover in short order as the potential for a significant communications cycle re-ignites investor interest. We’d add that we believe investors are under-estimating the potential for tight industry supply in 2011, a positive factor for the sector that may be amplified in an improving economy.
- Bullish on Pfizer (PFE): The general responsiveness to long-standing shareholder concerns is a strong positive in our view. While 2011 topline and EPS guidance is slightly below consensus we are gaining more certainty around the company’s long-term outlook and strategic priority. CEO Ian Read and team stressed the return of value to shareholders, a focus on late-stage pipeline assets to reverse a history of disappointing R&D productivity, and the ongoing strategic review to determine the optimal mix of business throughout the year.
- Situation still not good for Boston Scientific (BSX): Maintaining hold as we have done for the past five years. EPS declined as BSX continues to struggle with consequences of the deal many wished got away. There are some opportunities, but it’s going to take a lot of time to turn this ship around. We don’t find the valuation attractive.
- Emerson Electric (EMR) is encouraging: Operational results were roughly in-line and below consensus because of a slightly higher than expected tax rate. The company reported some slowing in China and Southeast Asia, albeit from high levels. The price/cost dynamic is expected to improve over 2011, although it is likely to remain an issue for some time.
- Tepid on Powerwave Technologies (PWAV): Demand isn’t rising as fast as we expected but margins remain in control. While we recognise Powerwave should benefit from 4G builds in North America and 3G builds in emerging markets, we have trouble building an upside case for 2011 given 2010 revenue fell at the low end of original $590-620 million guidance. Management expects a normal seasonal decline in Q1-11 and key growth drivers such as 3G, direct-to-operator and Americas revenue all declined in Q4.
- Bullish on Sirius XM Radio (SIRI): We upgrade SIRI to overweight. We believe that acceleration in free cash flow and the potential for return of capital in 2012 or 2013 should attract a greater number of institutional investors, driving the shares higher over the next 12-18 months. We expect continued subscriber growth acceleration from both new and used cars, which combined with continued cost containment, should lead to a 15-18% EBITDA growth through 2015.
- Better margin expectations for WellPoint (WLP): We are raising our forecasts to reflect slightly better margin expectations in 2012. This is because G&A savings should continue into next year, continued buybacks will drive the share count down in 2011 and 2012 and implementation of the new MLR rules will “anniversary” in 2012. WLP shares have had a nice move year to date and could pull back short term on the heels of that move. Still, we like the fundamental backdrop for 2011 and see additional upside in WLP shares of 25%. Our new price target is $80.