Let’s take a look at analysts’ morning notes.
- Advanced Micro Devices (AMD): Reiterate neutral. We believe most critical for AMD now is manufacturing execution, requiring leadership with technical savvy that can ensure adherence to schedule commitments because current management transition raises uncertainty.
- Google (GOOG): Reiterate buy. The company’s surprise management reorganization stole the spotlight. Eric Schmidt’s move to chairman will free up time to focus on strategic issues. We do not expect material changes to the strategy, and believe the company will be in capable hands under Page. We remain bullish on Google’s long-term growth prospects, as several new operating segments appear close to achieving ‘escape velocity.’ For 2011, Google will focus investment into display, YouTube, Android and Enterprise, as well as the areas of Local and Commerce. Each of these areas should deliver healthy returns in 2011.
- Google (GOOG): We believe investors were slightly unsure of how to react to the Larry Page replacing Eric Schmidt as CEO news. The bottom line is that we believe the earnings demonstrate Google’s core search business is healthy and the change to Page as CEO could be at worst a net neutral and at best a net positive. We don’t think the CEO change will negatively impact operations but it could slightly help inspire the company creatively in the face of more competition from Apple, Microsoft and Facebook.
- Wendy’s/Arby’s Group (WEN): Maintain buy. We are keeping our buy rating following news today that the company plans to explore a sale of the Arby’s brand. Arby’s could be worth $335 million-$450 million. Cash proceeds could be closer to $220 million, assuming some of the sale leaseback debt stays with Arby’s and a 25% tax rate. We believe cash proceeds would likely go towards paying down debt and that a deal would be neutral to our 2012 earnings-per-share forecast of $0.24.
- Synaptics (SYNA): Downgrading to neutral. Though it reported another solid quarter and the near-term guidance for this year was encouraging, the full-year outlook calls for a significant slowdown in the June quarter, in part caused by declining Application Service Providers as the product mix shifts towards chipsets faster than we’d anticipated. We are downgrading because of uncertainty with timing of new product cycles and the impact of resulting mix on margins.
- Apple (AAPL): Overweight. Asia Pacific ex-Japan was the largest earnings driver in the quarter for the first time representing 33% of total segment operating profit growth 39% of total operating income growth). Apple China is now ahead of the ramp BMW experienced in China over the past four years and could contribute well over half (and as much as 100%) of the total company earnings growth we expect through 2012.
- Cabot Oil & Gas (COG): Upgrading to overweight from underweight. It had its former rating because of concern about funding of the capital program and growth trajectory uncertainty. In the past six months both of these issues have been resolved. Our view on the commodity is unchanged. However, with consensus squarely in the bullish oil/bearish gas camp, we believe commodity-agnostic stock-picking can deliver in 2011.
- Hewlett-Packard (HPQ): Overweight. As Ray Lane’s first major move as Chairman of the Board, we believe shareholders will welcome these changes given concerns around the composition of the board since Mark Hurd’s departure. The new board members seem to fit firmly with the view that HP will be more aggressive in attacking opportunities in higher value revenue streams under the direction of new CEO Leo Apotheker. While the company is indicating that the Hurd situation had nothing to do with the change and that the departures were voluntary, we believe that Joyce and Hyatt in particular were loyal supporters of Hurd. We expect Apotherker to outline gross margin improvement by investing more in research & development and enterprise assets.
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