3 Stock Picks: S, LIZ and ADBE

Sprint Nextel (S) earnings were hobbled by restructuring charges, but investors on Monday responded to the stronger pace of growth in its prepaid subscriber base. 

The Overland Park, Kan., wireless carrier reported a 21cents a share loss, but the company gained 675,000 prepaid subscribers due to its Boost Unlimited calling plan. That earnings loss was worse than the year-earlier deficit of 18 cents a share. However, more than half of the latest results come from restructuring charges linked to its layoff of 13% of its work force, a move aimed at saving as much as $12 billion. Wall Street analysts on average expected a quarterly loss of five cents a share.

"The economy has created challenges and it also creates opportunities for those who adapt as necessary," CEO Dan Hesse said. "The first quarter of 2009 is the first quarter where we believe that there were as many prepaid as there were postpaid customer decisions in the U.S. The prepaid share of the market could increase in future quarters."

Oppenheimer analyst Timothy Horan kept his Underperform rating on the stock, citing Sprint’s loss of 1.25 million post-paid subscribers – the conventional subscription model – and stiff competition as the third-largest long-distance carrier in the country.

While both cost cuts and prepaid growth should continue, Horan said declining landline revenues were still a major consideration.

Bottom Line: Sell
Prepaid growth doesn't offer the security of a post-paid customer base. Whether subscribers are leaving because they can't afford cell phone plans or don't like Sprint's offerings, it may be better to dial a competitor for growth.

Investors bought shares of Liz Claiborne (LIZ) on Monday after a key analyst upgraded the stock and said it had likely reached an inflection point.

Goldman Sachs analyst Benjamin Rowbotham on Friday added the stock to his Conviction Buy list and called the apparel maker "an underappreciated turnaround story with micro and macro oriented catalysts to drive significant upside."

"Specifically, we believe a combination of improving fundamentals and expanding valuation will move shares higher toward our $7.20 price target in the next 12 months," he wrote. (The shares currently trade at $6 a piece, even after Monday’s 25%+ gain.)

Liz Claiborne's struggles have been waged in a tough retailing climate, where discretionary spending has been cut back dramatically. In early March, it recorded break-even results for its operating earnings and took a large loss on store closures and discontinued operations.

"We do not believe our market capitalization today reflects the true long-term value of our company in spite of obvious risk and volatility in the short term resulting from current economic conditions," CEO William McComb said March 4.

Morningstar analyst Michelle Chang recently described its challenges, but also said management has performed as well as could be expected in a severe recession. "The company is committed to stabilizing its traditional wholesale business, while driving growth at its younger, retail-focused brands," she wrote last month. "We believe Liz can right the ship.” However, she added, it will be a bumpy ride if significant macroeconomic headwinds persist, especially since Liz has a heavy debt load to manage.

Bottom Line: Buy
If investors are suiting up for recovery, a chic but not too expensive clothing maker could show rapid improvement.

Shares of Adobe (ADBE) dipped Monday after a pair of downgrades to the software maker's stock based on valuation calls.

The San Jose, Calif., maker of the popular Acrobat document and Creative Suite programs took hits from analysts at UBS (UBS) and Citigroup (C) because the stock price has jumped 64% since hitting a low $15.70 on March 3. The analysts dropped the shares to Neutral or Hold from Buy. In March the company met Street estimates for its most recent quarter by posting earnings of 38 cents a share.

Heather Bellini at UBS said the stock is stabilizing, but that fiscal second-quarter sales numbers aren't headed for a major increase. She changed her rating to Neutral.

Citigroup's Brent Thill pulled Adobe from his tech conviction buy list on Friday, cutting his rating to Hold. He said investors may be expecting too much from Adobe in the fiscal third quarter ending in August (analysts expect, on average, earnings of 34 cents a share). Thill said the company doesn’t have a new product coming out soon, and that influences its performance.

"Adobe’s stock performance has historically tracked major Creative Suite (CS) product cycles," he wrote. "The current CS4 cycle (launched 4Q08) is being muted by the recession, and we do not expect the next CS5 cycle for another six or seven quarters. Acrobat 10 is likely to launch around 2Q10, though is less impactful than CS."

Bottom Line: Sell
There are more solid tech bets out there than a software maker without new offerings.