Let’s take a look at analysts’ morning notes.
- American Airlines: Downgraded to neutral from buy. We applaud AMR in its efforts to reduce distribution costs, particularly through online travel agency channels but this negotiation is likely to hurt near-term earnings. Our 2011 earnings per share estimates were already below the Street and with the shares approaching our 12-month price target we can no longer support a buy rating.
- Lousiana Pacific: Downgraded from neutral to sell. The building materials industry is running at just above 60% of capacity. At this level, we believe there is just too much excess capacity to sustain pricing much above cash costs. We expect prices to correct in coming weeks. With homebuiders entering 2011 with shorter backlogs than in 2010 but we do see some risk of disappointment in the spring building season.
- Silver Standard: Upgraded from hold to buy. December’s cash proceeds from sale of gold properties to Pretium Resources solve a key overhang related to Silver Standard’s ability to fund its next two mines, clearing the way for a potential tripling of capacity by 2020. New management focusing on execution of current project sales versus prior focus on exploration is also a plus.
- Apollo Group: Overweight rating. The company did a solid job of moderating expenses in the first quarter and while margins will detiorate through the year as total enrollments slow, it demonstrates efforts to balance quality initiatives with profitability. Major operational and regulatory challenges remain but we continue to rate the stock overweight as we see the risk/reward as favourable despite lowered expectations.
- CIT Group: We initiate coverage at equalweight with a $48 price target. It is a top lender to mid-market and small businesses, and has excess capital. We are on the sidelines due to uncertainty on its ability to fund consistently profitable growth until high-coupon, highly restrictive Series A debt is replaced with cheaper, less restrictive funding and when it can manage capital more efficiently.
- Apple: Overweight rating. We continue to believe Apple’s valuation is attractive and that shares can benefit from strong iPad and iPhone 4 demand. The long awaited Verizon iPhone could make its debut today. We continue to believe Apple can ship at least 9 million iPhone units through Verizon this calendar year out of over 15 million units total in the U.S. There could be even further upside depending on how quickly the iPhone ships and pricing.
- JC Penney: The company has brought in a new CFO, Michael Dastugue, to replace Robert Cavanaugh. We don’t believe these announcements are in response to shareholder activism as these changes have been considered for over a year. We view the departure of Peter McGrath, vice president of product development, as a slight negative given the company is now entering the toughest sourcing environment the industry has seen in years.
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