Several of the top computer hardware companies got a lift early Thursday after Bank of America started coverage on the likes of Apple Inc. (AAPL) and Hewlett-Packard Co. (HPQ), saying that the sector is improving due to better salesoutlooks and the likelihood of more stock repurchases in the future.
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BofA analyst Scott Craig initiated his coverage on Apple, H-P, Dell Inc. ( DELL ) and Sun Microsystems Inc. (SUNW) with buy ratings, and started covering International Business Machines Corp.'s ( IBM ) stock at neutral.
Following the coverage announcements, Dell shares rose 35 cents to $28.11, Sunadded 5 cents to $5.15, Apple was up 24 cents at $135.24, and H-P rose $1.06, or2.3%, to $47.79. IBM shares tacked on $1.10 to trade at $113.14.
In a research note, Craig said the moves were made for several reasons,including "channel checks and industry data [that] suggest that IT spending,particularly on servers and PCs is improving after bottoming in late 2006."Craig added that he expects Dell and H-P to report better-than-expected resultswhen both companies give their quarterly reports later this month.
Craig also said the industry "is flush with cash" and is primed for more stockbuybacks in 2008 and 2009.
Among the companies that Craig started coverage on, he said his "top picks"are Dell and Sun.
Regarding Dell , Craig that the company could announce some share buybacks overthe next two years, and should begin to see the benefits from its cost-cuttingplans that include shedding 10% of its work force, or more than 8,000 jobs.Craig said that issues that have affected Dell's PC market share, such asgeographic and customer sales, are at least not getting worse at the presenttime.
"The exact reasons you didn't want to own Dell stock over the past couple ofyears are turning into the exact reason you do want to own Dell over the nextcouple, in our opinion," said Craig, who also set a 12-month price target of $35on Dell's stock.
Craig said Sun presents an "attractive risk [and] reward story for patientinvestors," and that the company is committed to reaching its goal of 10%operating margins in its 2009 fiscal year.
In order to do that, Craig said he believes Sun will announce another majorcost-cutting plan sometime in 2008. Sun shed about 3,000 jobs shortly afterJonathan Schwartz took over as CEO in April 2006. Craig also expects Sun, whichrecently completed buying back $3 billion of its stock, is likely to repurchaseat least another $1 billion worth of stock in its 2009 fiscal year.
Craig set a price target of $6.25 a share on Sun's stock.
Wall Street analysts have been practically falling over themselves to raisetheir price targets on Apple's stock, and Craig admitted that "we are late tothe Apple party." Still, he set a $160 price target on Apple's shares, and saidhe believes the stock has some room left to rise because Apple continues to gainPC market share with its Macintosh, and its iPod business should also improvewith new models expected by early fall.
Craig said there has recently been "too much focus on near term iPhone unitsales and not enough on the [company's] game-changing business model."
Craig set a $56-a-share price target on H-P's stock, saying that the company,which has undergone large cost cuts and taken PC market share since Mark Hurdbecame CEO in 2005, and said that more cost savings and better-than-expectedrevenue and earnings should push H-P's stock higher over the next severalmonths.
But even though Craig has a buy rating on H-P and is generally upbeat aboutits prospects, he said there are risks developing for the company that couldbegin to show up next year.
Craig said that some of the issues that Dell is working through should beginto put pressure on H-P in the retail and consumer markets. Additionally, Craigsaid that H-P's benefits from lower component costs are reaching a bottom pointand it might be hard to for the company to maintain its high printer margins.
IBM was the only one of the five computer giants to not get a buy rating fromCraig, as the analyst set his initial rating on Big Blue at neutral.
Craig said that IBM appears to be in a strong overall position with "a fullcomplement of technology offerings," as well as earnings growth, new hardwareproducts and stock buybacks in 2008.
However, Craig said he couldn't give IBM a buy rating because of some "minorconcerns," such as "lack of organic, non-currency assisted revenue growth, loftyexpectations for its choppy services business and recently increased valuation."
Still, Craig said he expects IBM's earnings to improve over the next twofiscal years, and set a $125 price target on IBM's stock.
-By Rex Crum; 415-439-6400; AskNewswires@dowjones.com
(END) Dow Jones Newswires 08-02-07 1356ET Copyright (c) 2007 Dow Jones & Company, Inc.
