Let’s take a look at analysts’ morning notes.
- CITI: Buy on weakness. We remain AGGRESSIVE buyers of HPQ on this pullback. We believe the larger-than-expected shortfall in consumer PCs is a product of HPQ’s determination to reduce channel inventories ahead of Intel’s Sandy Bridge transition. HP is investing to fix self-inflicted problems, but this will take a few quarters.
- MORGAN STANLEY: Buying opportunity. Weaker demand and execution issues in consumer PCs application outsourcing drove a F1Q/FY11 revenue miss and guide down. The execution issues will impact the stock near-term but we continue to believe that HP can invest in R&D and sales coverage without lowering its operating margin.
- BREAN MURRAY CARRET & CO: Bullish. While HP guided Apr Q below the Street (both revenue and EPS) as well as FY11 revenue guidance, it did essentially move FY11 guidance to the higher-end of its prior guidance. Commercial demand is still strong and HP commented it believes it remains in the “middle-innings” of the corporate refresh.
- MORGAN STANLEY: Overweight. We are maintaining our rating on the shares based on: recovery in the higher-end consumer, a better ability vs. mid-tier peers to pass on increased product costs and potential earnings upside in the credit business. We see two key areas of outperformance: gross margin and credit.
CBS CORP (CBS):
- BARCLAYS: Netflix deal is a positive. CBS announced a two-year, non-exclusive licensing agreement with Netflix, giving the subscription streaming company digital rights to full seasons and certain episodes of CBS’s library content. We estimate the deal is worth roughly $200 million to CBS over two years. We believe the deal is a clear positive for CBS, as the network is now able to monetise its library content in new, incremental ways without devaluing that content or jeopardizing existing revenue streams from ad buyers or distributors. The deal includes full seasons of Frasier, Family Ties and Cheers.
- BARCLAYS: Bearish. We continue to find DTV shares attractive, driven by strong operational performance. We expect key conference call topics to include competitive trends, including the impact of promotional activity by DISH, the current status of NFL labour negotiations, churn and ARPU performance in LatAm and an update on the company’s plans for capital structure.
FOREST LABORATORIES (FRX):
- CITI: Acquisition of Clinical Data (CLDA) is negative. Downgrading to hold from buy. FRX announced its intent to acquire CLDA for net $1.2 billion ($30/share), with potential contingent value payments (CVP) of up to $6/share. FRX expects heavy dilution from the deal in the near-term. In addition, we see downside risk from a slow sales ramp seen with other recent antidepressant launches as a result of “use generics first” programs used by managed care. This could delay accretion beyond FRX’s 3-year expectation.
- BARCLAYS: Positive outlook. Macy’s paid down $1.2 billion in debt in 2010 and ended the year with $1.5 billion in cash. The company expects to contribute $225 mm to its pension plan in 2011, which it expects to be fully funded by the end of the year, and spend $800 mm in capex. We are adjusting our 2011 EPS estimate to $2.30 from $2.25 based on expectations for 3% comp growth throughout the year and flat gross margins. We are also raising our 2012 EPS estimate to $2.55 from $2.45 and maintaining our price target of $30.
BABCOCK & WILCOX (BWC):
- UBS: Strong bookings expected. The FY12 budget proposal includes $67 million to help design and licence small reactors. As of mid-2010 we estimate BWC was spending $50 million/year on R&D for mPower. Assuming BWC is now incurring $30-$40 million, we estimate that it could receive $30 million of help from Obama’s FY12 budget. We expect strong bookings driven by Virginia class subs and DOE awards.
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