Good morning, here’s your equity research roundup from the Street:
Bank of America Merrill Lynch:
- European Financial Stability Facility: Leaders are moving to increase lending and flexibility of the EFSF. Already approved by France, Belgium, Italy, Luxembourg and Spain, with Germany expected to vote positively on Sept. 29. Vote still faces hurdles by Slovenia, where the ruling government may dissolve, and Finland.
- Specialty Retail: Initial prices remain higher across retailers, but promos to come later this fall. Abercrombie and Fitch has raised its price point significantly, with some apparel categories up 47% to 127% versus last year. Aeropostale having difficulty with product assortment. Gap and Banana Republic both pricing up year-on-year, but Gap remains focused on regaining market share, may lower prices into October/November period.
- Corning Inc. (NYSE: GLW): LCD prices continue to deteriorate in the second half of September. Glass for flat panel displays represents 46% of Corning’s net sales.
- Orexigen Therapeutics (NASDAQ: OREX): Firm announced agreement on the design of a cardiovascular trial with the FDA after markets closed yesterday. Analysts project data from testing to be ready in two years, product launch in 2014 and sales reaching $500 million by 2018. Other investors have been positive on OREX as well.
- Price Target Changes: Increases – Allegiant Travel Co. (from $57 to $62), Cielo (from $45 to $46), Cree Inc. (from $33 to $34), Delta Air Lines ($14 to $15), Redecard SA (from $28 to $29); Declines – Corning Inc. (from $19 to $18), EnCana Corp. (from $29 to $26), Orbotech (from $15 to $14), United Continental Holdings (from $35 to $33)
- HealthSouth (NYSE: HLS): President’s debt reduction plan reduces spending to medicare inpatient hospitals, which would lower HealthSouth EBITDA by $100 to $140 million.
- Pharmerica (NYSE: PMC): Board of Directors rejected Omnicare’s unsolicited bid of $15 a share. A deal remains possible, as synergies of $100 to $150 million remain attractive for both companies.
- General Motors (NYSE: GM): With details still emerging on the UAW deal, focus is moving to attrition of Tier 1 workers. Tier 1 employees are more expensive than new hires at Tier 2 levels. GM could save $300 million in labour costs a year with a 15% Tier 2 mix.
- Tiffany & Co. (NYSE: TIF): Positioned well for back half of 2011. Tiffany announced plans to open a store in New York’s SoHo district. Company remains focused on international expansion, particularly China, where the company sees 50 to 60 stores long term.
- Bombardier (TSE: BBD.B): Bombardier announced capacity cuts to its CRJ regional jet. The segment accounts for 11% of Bombardier’s overall revenue stream, meaning the decrease has likely already been priced into shares.
- Consumer Credit: This August card issuers sent $665 million in credit card offers to consumers, twice as much as year ago levels. Analysts are raising 2011 total expectations to 5 billion offers from lenders.
- Nike (NYSE: NKE): Analysts see currency moves working in Nike’s favour. Nike reports earnings tomorrow.
- Gaming: Initiating coverage on Ameristar Casinos – Hold, target $20, Boyd Gaming – Hold, target $7, International Game Technology – Hold, target $16, Las Vegas Sands – Buy, target $61, MGM Resorts – Buy target $17, Penn National Gaming – Buy, target $52, Pinnacle Entertainment – Hold, target $14, Wynn Resorts – Buy, target $198.
- Dollar General (NYSE: DG): Facing headwinds in driving sales per square foot as easy boosts have already been taken advantage of, including extending store hours and increasing shelf space. If same store sales decline, the company would have difficulty hitting 10.0% margin estimate.
- DuPont (NYSE: DD): Demand has been strong at the Agriculture division, with sales improving at Autos and Electronics. Lack of new supply capacity of its TiO2 product will mean increased prices for consumers. Analysts expect DuPont to beat Q3 expectations of $0.56 a share.
- MeadWestvaco (NYSE: MWV): Packaging trends have moderated and backlogs have declined. Specialty chemical division is holding up with strength in emerging markets. Oilfield Services and Asphalt or Automotive sectors remain healthy. Maintaining neutral rating and $40 December 2012 price target.
- Pacific Biosciences (NASDAQ: PACB): Company is laying off 28% of its workforce to conserve capital on hand. Burn through rate of cash was too rapid while product adoption has been slower than expected. Analysts are lowering expectations and downgrading to underweight.
- Retail Department Stores: Indicators point to a 4.7% increase in January 2012 retail sales. Though this has slowed from last January’s growth rate, it has improved from last month’s reading. Better performance will be driven by lower unemployment and greater construction spending.
- Microsoft (NASDAQ: MSFT): Increased dividend returns to shareholders at $0.80/year, or about 3%, now track above overall S&P yield. This should ease concerns heading into Windows 8 release.
- Philip Morris International (NYSE: PM): Firm is having a tremendous year on profits out of Japanese division and favourable foreign currency exchanges. Investors will begin to look to 2012 expectations, as comparisons will be difficult to this year.
- Tesla Motors (NASDAQ: TSLA): Automobile manufacturer will preview new Model S on October 1, showing prudent management and the firm’s ability to hit production goals.
- Online Travel Agencies: International unique visitors jumped 18% in August. Priceline led with a 31% increase in foreign web traffic, while Orbitz was up 8%. Domestic traffic declined however, with an aggregate drop of 4%.
- UnitedHealth (NYSE: UNH): Analysts believe the company is well positioned to take advantage of changes in the insurance/Medicare landscape. Company continues to invest in its Health Services division to fuel growth.
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