Let’s take a look at analysts’ morning notes.
- American Express (AXP): Buy. We expect shares to trade off on the elevated expenses though the stock market was arguably prepared for it with the pre-announcement. We’d see an enhanced buying opportunity on any pullback as the long-term theses is intact. For over a year now, management has stated that credit improvement would fund business investment and future growth. Also, fundamentals for AXP remain strong with spending likely to increase in conjunction with higher global GDP and we expect material share repurchases once the Fed gives American Express the green light in March of this year.
- Halliburton (HAL): Reiterate buy. The fourth quarter was a net positive for Halliburton on its earnings-per-share and top-line beat and market trends suggesting North American margins will improve through the year. It remains our top pick among the big four service companies.
- McDonalds (MCD): Overweight. Earnings fell short of expectations. We believe fear of a fourth-quarter compensation & margin shortfall was the primary driver of recent underperformance. We continue to recommend purchase though we are aware that Quick Service Restaurant stocks will underperform discretionary peers in an improving macro.
- American Express (AXP): Overweight. Remains one of our top picks for 2011 because they have finally turned the corner on revenue growth thanks in large part to stopping the run off of the loan portfolio, which in turn stops the decline in net interest income, which dropped over the last few years from a peak of 24.0% of the total revenues to just 16.8% in the third quarter of last year.
- Alexion Pharmaceuticals (ALXN): Overweight. We see success in preventing kidney transplant acute humoral rejection and a continued strong base business execution.
- Bank of America (BAC): Overweight. It’s business fundamentals remain in tact. It is one of our top picks in large cap banks. Lower losses, fading regulatory and litigation challenges and higher dividends are catalysts for 2011.
- Costco (COST): Maintain neutral. We expect the company to continue to delive attractive sales growth (up 7.3% for January). Despite upcoming tougher companies, Costco remains one of the few staple retailers that could pass through rising inflation and keep compensation up 5%. We like Cosctco for the relevance of its business model, where roughly 70-80% of pretax income is generated from membership fees, strong cash flow generation and its growing international strategy.
- RigNet (RNET): Initiate with buy. Our positive view is based on four factors: projected growth in offshore rig fleets due to increasing oil prices, forecasted gains in day rates due to improved customer penetration/mix and growing offshore bandwith needs, potential expansion into adjacent markets such as energy vessels and production platforms and valuation which looks attractive versus public comps and recent M&A.
- Rock-Tenn (RKT): Buy. Earlier this week Rock-Tenn announced the acquisition of Smurfit-Stone for a price of $35/share. Total purchase consideration is $5 billion including $3.5 billion of equity value, $0.7 billion of net debt and $0.7 billion of after-tax unfunded pension liability. We are boosting our 2012 estimate from $6.00 to $8.00 and our price target from $65 to $80.
- Halliburton (HAL): Outperform. Based on considerable effort examining the state of the U.S. land market, we are convinced that not only will the liquids-rich plays continue to drive fracturing demand growth in excess of supply, but that increasing technical complexity will favour the more differentiated companies like Halliburton at the expense of more commoditized providers of fracturing services. We expect the international oil service market to see steady revenue growth in 2011 followed by revenue and margin expansion in 2012 as healthy oil prices promote increased E&P activity and soak up access capacity.
- Bank of Hawaii Corporation (BOH): Downgrading from outperform to neutral. The lack of a near-term catalyst amid top-line revenue pressure leaves us moving to the sidelines despite the bank’s defensively positioned balance sheet, top-tier profitability, and 3.8% dividend yield.
- Amgen (AMGN): Reiterate outperform rating. Remain buyers after a solid fourth quarter beat and largely in-line with 2011 guidance. With opportunity for revenue upside this year, a major product launch unfolding and what we sense is a shift in M&A emphasis away from geography-specific deals (which we don’t like) to more traditional technology-centric deals, we continue to like this name into the mid-$60 range.
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