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Street Talk: Helping HP
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November 13, 2000: 10:35 a.m. ET
Analysts boost Intel, downgrade Applied Materials; rate banks, metals, Avon
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NEW YORK (CNNfn) - After computer and printer maker Hewlett-Packard stunned Wall Street by announcing a big earnings shortfall Monday, one analyst jumped to its defense.
Analysts also continued to focus on the beleaguered semiconductor industry, reassuring investors about Intel, but adding to the woes of Applied Materials.
Sanford C. Bernstein said it kept its "market perform" rating on Hewlett-Packard (HWP: Research, Estimates) just hours after it reported it missed earnings estimates for its fiscal fourth quarter.
Hewlett-Packard, a component of the Dow Jones industrial average, also said it ended talks to buy the consulting business of PricewaterhouseCoopers.
In a report, Sanford C. Bernstein said, "Guidance for 15 to 17 percent revenue growth may not be realistic. The good news is that HP will end talks to buy Price Waterhouse Consulting." The firm called the stock's valuation "attractive."
Hewlett-Packard shares were off $5.13 to $34 in early Monday trading.
Mixed chips
ABN Amro analyst David Wu kept his "add" rating on semiconductor maker Intel (INTC: Research, Estimates). In a report, he also reaffirmed his 12-month target price of $54.
"We are maintaining our 'add' rating in the face of negative investor sentiment against all" stocks linked to personal computers (PCs), Wu wrote in a report. "The big growth markets in (2001) are likely to continue to be Asia/Pacific, Japan and Latin America, where the U.S. multinational PC companies do not dominate, unlike the mature U.S. and European markets."
Intel shares were down 31 cents to $36.69.
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Credit Suisse First Boston analyst John Pitzer cut 2001 earnings projections for another semiconductor company, Applied Materials (AMAT: Research, Estimates), to $2.85 a share from $3.25.
"We become more worried about growth in the April quarter," Pitzer wrote in the research note. "We have perhaps a more bearish view than most on the length of the current inventory correction. We are lowering our 2001 capital growth estimate from 10-15 percent to 0-5 percent."
Pitzer said he believed Applied Materials would meet its guidance for the fiscal fourth quarter of revenue in the range of $2.85 billion to $2.9 billion and earnings per share in the range of 73 cents to 75 cents a share. Orders are expected to be $3.5 billion.
Pitzer said his estimates of $2.99 billion in revenue and earnings of 77 cents a share may be above the high-end. However, the outlook is less certain. He wrote that Applied Materials will likely give "flattish sequential" guidance for first quarter 2001 and that a strong backlog should allow for modest revenue growth in that quarter.
SG Cowen said it expects Applied Materials to meet its estimate of fiscal fourth-quarter earnings per share of 76 cents.
SG Cowen also expects revenues of $2.95 billion, in line with the company's guidance.
"Resetting of expectations in key end markets, weakness in the euro, and higher oil prices have increased uncertainty of capital spending forecasts for 2001," analyst Min Pang said in a research note.
Shares of Applied Materials fell 56 cents to $40.38 in early trading.
Banging metal
Deutsche Banc Alex. Brown was unkind to the metals industry, cutting its rating on Alcan Aluminum (AL: Research, Estimates), Alcoa (AA: Research, Estimates), Inco (N: Research, Estimates) and Falconbridge (FL: Research, Estimates) to "market perform" from "buy."
Merrill Lynch, however, reiterated a "buy" rating on Alcoa, the world's largest aluminum producer, and forecast that aluminum prices would rise amid growing consumption and falling inventories.
UBS Warburg made cautious comments on several regional-bank holding companies, including Wachovia (WB: Research, Estimates), Firstar (FSR: Research, Estimates), PNC Financial Services (PNC: Research, Estimates) and SunTrust Banks (STI: Research, Estimates).
Analyst Michael Plodwick cut his price target for Wachovia to $60 from $70, saying he thought the North Carolina bank had emerged from a credit-quality crisis, but investors would need some time to warm up to the stock again.
Plodwick also lowered his price target for Wisconsin-based bank Firstar to $26 from $35 and Georgia-based SunTrust Banks to $65 from $70. He reiterated "buy" ratings on both stocks, however.
Plodwick raised his target for Pennsylvania-based bank PNC Financial Services Group to $85 from $75, saying, "PNC is successfully transitioning into a diversified financial services institution as it builds out its fee-based units."
Lehman Brothers raised its target price on bank holding firm TCF Financial (TCB: Research, Estimates) to $52 from $47 and reiterated its "buy" rating, citing the company's growth story.
"We are not ready to get off the wagon," said analyst J. Goldberg in a research note.
He said the company's strategy should make 13 percent earnings growth easily attainable in each of the next two years and the company still trades at a 25 percent discount to similar growth names, but the gap should close.
Goldberg said he believed revenue mix, balance-sheet strength, management and strategic positioning will be even further differentiating factors in the current environment.
TC Financial shares were down 44 cents to $39.88.
Calling Avon
Credit Suisse First Boston analyst Carol Warner Wilke raised her 12-month price target on Avon Products (AVP: Research, Estimates) to $60 from $48.
Wilke said in a note that the company has posted three better-than-expected quarters this year, driven by strong sales and unit growth.
"We expect the momentum to continue, and the outlook for 2001 is strong. Management credibility has improved significantly due to the strong results, and this is a key component to the story," she said in a note.
"In what has been a very challenging year for many other consumer companies, Avon's management has proven it has a firm grasp on its business," Wilke said, reiterating her "buy" rating on the stock.
Avon shares were up $1.62 to $49.44.
ABN Amro analyst Girish Tyagi set a 12-month price target of $107 a share in starting coverage of Johnson & Johnson (JNJ: Research, Estimates), maker of Band-Aid bandages and medical devices, with an "add" rating.
Johnson & Johnson shares closed at $94.44 on Friday.
"We believe the potential value of JNJ's cardiac franchise is not fully appreciated," the analyst wrote. "Strong marketing and diversity of products provides increased confidence in JNJ's earnings."
USFreightways, Kroger, Sunoco
Credit Suisse First Boston upgraded transport company USFreightways (USFC: Research, Estimates) to "strong buy" from "buy."
In September, CSFB cut its rating on the Chicago-based company to "buy" from "strong buy" after USFreightways said it expected slower U.S. growth to pull down third-quarter earnings.
Shares of USFreightways were up $2.06 to $26.75.
Bear Stearns raised its rating on supermarket chain Kroger (KR: Research, Estimates) to "buy" from "attractive" and its price target to $32 from $25.
 "We think management's concentrated effort to enhance labor productivity, along with the unique positioning and growing penetration of a three-tier private label program, leave Kroger poised to drive long-term earnings per share growth of at least 16 percent," Bear Stearns said in a research note.
Bear Stearns cut its rating on oil company Sunoco (SUN: Research, Estimates) to "attractive" from "buy." Bear Stearns said it thought Sunoco's identity was being "clouded" by its agreement to buy chemical plants from Aristech Chemical. 
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