Let’s take a look at analysts’ morning notes.
- AOL’s (AOL) acquisition positions the firm well but Arianna Huffington could be a problem: We believe AOL’s significant investment in online content is consistent with the company’s build-out of local content on Patch. In addition, the acquisition positions AOL well for 2012 elections. As with any integration, the integration of Huffington Post into AOL’s news properties will be key, in our view. In addition, Arianna Huffington’s political views could challenge AOL’s perception as an unbiased source of news, potentially impacting traffic growth. Maintaining our neutral rating and $25 price target.
- Lorillard (LO) is attractive: Following the company’s strong fourth-quarter results, we reiterate our overweight ratings and our expectation that the company can continue, as it has consistently done in recent years, to generate earnings growth and cash returns to shareholders in excess of U.S. domestic tobacco peers. We also remain of the view that despite the considerable near-term uncertainty surrounding the Tobacco Products Scientific Advisory Committee menthol recommendation, Lorillard continues to offer an attractive risk-reward at a substantial discount to peers. In the final outcome, any FDA regulation of menthol is unlikely to materially impact Lorillard’s business model.
- Likes Brown & Brown (BRO): Its 4Q10 earnings exceeded our outlook driven by higher than expected acquisition-related revenues; however organic growth of -3% was lower than our -2% outlook and represents the first quarter since 4Q09 this metric did not improve ex unusual items. We expect BRO’s organic growth to improve in 2011 as the economy recovers, although we believe this benefit is already reflected in BRO’s high valuation.
- Bearish on AFLAC (AFL): Downgrading to hold because of too much near-term uncertainty. To be certain, we still view AFL’s shares as an essential core holding among global life insurers. But, management has acknowledged the company could easily face $1 billion of investment impairments in 2011. Coupled with an uncertain sales picture in Japan and the U.S. suggests, given AFL’s current strong valuation, this is an appropriate time to step back and see how the year unfolds.
- Less near term risk for Urban Outfitters (URBN): Inventory should move closer to the rate of sales to end the year and markdown rates, while they remain historically high, appear to have been relatively well managed to end the quarter. Consensus is now looking for 16% EPS growth in 2011. We don’t see that as unreasonable given low to mid-teens unit growth and prospects for share buybacks.
- Bullish on Becton, Dickinson (BDX): Its preeminent global healthcare products franchise is largely insulated from volatile macroeconomic conditions and structural deficiencies elsewhere in the healthcare delivery continuum. BDX’s fiscal-1Q11 EPS of $1.35 was $0.06 ahead of consensus as a lower tax rate more than offset a modestly weaker than expected revenue experience.
- Hasbro (HAS) has several growth opportunities: We maintain our conviction buy on HAS shares as we get ever closer to the company’s key 2Q11 inflection point. Starting with Transformers 3, there are eight movies coming out over a seven quarter period in which Hasbro has a vested interest. In addition we see several incremental positives coming out of HAS’s 45Q10 conference call: international sales growth appears to have accelerated, Beyblade could provide upside optionality as it sold $300 million in 2003 when it last gained traction, the company appears confident in its TV venture, where The HUB is up to 80 advertisers versus 50 at launch and overhead costs came in lower than expected on strong expense controls.In the near-term we believe the company will be able to compartmentalise its inventory issues within 1Q11.
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