Let’s take a look at analysts’ morning notes.
BMO Capital Markets
- Cisco (CSCO) is disappointing: It was able to deliver on revenues but gross margins were below expectations. We leave the call like last time thinking there is not a lot of revenue upside to the model. We also are questioning the long-term margin structure more than ever. We believe competition in switching, the mix to consumer, and the entry into the server market are all weighing on gross margins. Management is also hiring fairly aggressively. This is the third consecutive quarter where Cisco has disappointed.
- Activision Blizzard (ATVI): Strong 4Q10, but 2011 outlook disappoints; Margins should continue to improve
- Regal Entertainment (RGC): Tough box office, tough fundamentals temporarily
- Hudson Highland Group (HHGP): First thoughts on 4Q10, EPS miss
- Terex (TEX): Recovery ongoing but cost pressures temper results and forecast
- Activision Blizzard (ATVI) will have trouble in the short term: Revenue guidance for 2011 was set at $3.9 billion, below consensus of $4.69 billion. The $790 million difference between guidance and the Street is primarily due to Activision cancelling True Crime: Hong Kong, Guitar Hero, and DJ Hero, and to it excluding Diablo III from fiscal 2011 guidance. EPS guidance for 2011 was set at $0.70, below consensus of $0.83. Guidance was below estimates primarily due to revenue guidance below estimates.
Bank of America
- Bullish on Danaher (DHR): We believe the proposed acquisition of Beckman Coulter provides the catalyst for modestly higher valuation. Beckman should lower Danaher’s earnings volatility, while also reducing the assigned WACC as the company boosts its financial leverage in turn, DHR’s associated valuation multiple would rise. Overall M&A execution should boost investor sentiment.
- Cisco (CSCO) presents risk: Our report highlights areas of prolong risks and concerns. However, we take a contrarian view on the stock near term. We consider the stock to be particularly attractive on weakness. We expect higher revenues, margins and earnings over the next two quarters and believe they will drive share price higher. Cisco executed on growth, mix could improve margins in 3Q & 4Q and we expect Cisco to exit the low performing business.
- CBS Corporation (CBS) has strong outlook: We expect solid Q4, 2010 results on Feb.2. And we think the company’s “Investor Upfront” on Feb.24 could be an additional catalyst as management will likely highlight long-term strategy, FCF priorities, and asset mix. Recent commentary on ad spend has remained positive across Media-land, with Auto and Telco leading the way. That, in tandem with comments we’ve heard from TV/Radio station operators about later-cycle pickup on the Local side, should be positive for CBS. We like their ad momentum, emerging non-advertisement streams and strong FCF generation.
- Sinclair Broadcast Corp (SBGI): Upgrading from overweight to neutral
- Carter’s (CRI): Downgrading to neutral from overweight
- We expect weakness in shares of Nuance (NUAN): With weak FQ1 results and weak Q2 and back end loaded guidance, we expect weakness in shares of Nuance. While we continue to like growth in speech, given increasing competition, weak cash flow, and premium valuation, we see further pside challenging and maintain our underperform rating.
- Energy Conversion Devices (ENER): Q2 revenue misses while EPS is aided by one-time production cost reductions; adjusting estimates
- Akamai Technologies (AKAM): Q1 guidance disappoints on M&E contract renewals, but highlights streaming demand, estimates and target lowered
- Activision Blizzard (ATVI): Fat lady sings for guitar hero. Solid Q4 results overshadowed by sequential 2011 revenue and earnings decline. We remain positive on digital.
- Education Management Corporation (EDMC): Maintain neutral rating
- Tortoise Energy Capital (TYY): 1Q11 distribution lower than estimate, downgrading to neutral
- KeyCorp (KEY): Expect TARP repayment soon, not a seller near term