3 Stock Picks: BBBY, HTZ, PAYX

Investors embraced Bed Bath & Beyond (BBBY) Thursday after the home furnishings retailer reported a better-than-expected first-quarter profit. Shares rose nearly 11% at one point soon after the opening bell.

After the market closed Wednesday Bed Bath & Beyond said quarterly earnings came in at 34 cents a share, up from 30 cents in the year-ago period. That easily topped analysts' average estimate of 25 cents a share, according to Thomson Reuters. Revenue rose 2.8% to $1.69 billion.

The retail sector is looking a little rosier after the Commerce Department reported a better-than-expected 1.8% rise in durable goods orders Wednesday.

Bed Bath & Beyond Chief Executive Steven Temares said on a late Wednesday conference call that a focus on controlling expenses and improving the customer shopping experience allowed the company to outpace its competitors.

"Though challenging, we are confident that we will be able to look back at this period as one which afforded us an exceptional opportunity to continue to gain market share and to improve our competitive position," Temares said.

Bed Bath & Beyond is also benefiting from the bankruptcy of its chief competitor, Linens n' Things. The company may have picked up some market share as a result.

The absence of a big competitor has allowed Bed Bath & Beyond to reduce its advertising expenses, said Laura Champine, an analyst at Cowen & Company. The retailer has also cut payroll expenses, she added.

"They have been doing better than the [home goods] market for years," Champine said. "The big change is that expense line."

Bottom Line: Buy
The company's increased market share leaves it in a good position to take advantage of any rebound in consumer spending.

Investors hopped on board with Hertz Global Holdings (HTZ) after the car-rental company projected better-than-expected second-quarter earnings, sending shares up as much as 12% in early trading.

The company said it expects second-quarter earnings to come in at nine to 10 cents a share, helped by cost cuts and better-than-expected demand. Hertz's outlook far exceeded Wall Street's view, which projected second-quarter earnings of a penny a share, according to Thomson Reuters.

Hertz forecast second-quarter revenue to be between $1.7 billion and $1.75 billion, below analysts' average estimate of $1.89 billion.

"Our car rental demand in the U.S. and Europe has stabilized and we are experiencing better-than-anticipated summer peak reservation build in both markets," CEO Mark Frissora said in a statement.

Hertz’s brighter forecast suggests that the sector may have seen a bottom, said Christina Woo, an analyst at Soleil Securities.

The company added that its car-rental fleets are down nearly 15% year-over-year in the U.S., and more than 17% in Europe. "All the car-rental industry participants have cut back pretty significantly on their fleets, so demand is more in line with supply," Woo said.

Bottom Line: Buy
Stabilization in leisure summer travel and the shift of consumers to driving from flying bodes well for the company's shares.

Investors cashed out of Paychex (PAYX) Thursday after the company's fourth-quarter profit fell because of lower sales and interest rates. Shares dropped as much as 10% at one point early in the session.

After the market closed Wednesday the company reported fourth-quarter earnings of 32 cents a share, down from last year's profit of 38 cents and missing Wall Street's view by a penny, according to Thomson Reuters.

Revenue fell 4% to $495.9 million from $519.2 million. Analysts were looking for revenue of $510.5 million.

The bulk of the company’s revenue comes from payroll-service fees, which were down 4.8% because of high unemployment. Low interest rates have driven the company’s income on money held for clients down 52%.

"The impact of the weak economic conditions on Paychex’s business proved to be greater than we expected," wrote William Blair & Co. analyst Franco Turrinelli in a Thursday report. However, Turrinelli believes the company’s performance will pick up as the economy turns around.

"We continue to believe the company has an attractive business model and that small businesses should lead the economy out of recession," Turrinelli wrote.

Bottom Line: Hold
It’s hard to make money on payroll services when everybody’s out of a job and interest rates are scraping historical lows. Investors would do well to wait this one out until the macro environment shows clearer signs of improvement.