Wall Street Stock Forecaster Hotline – Thursday, June 30, 2011

PLEASE NOTE: Our next Hotline will go out on Friday, July 8, 2011.

STANLEY BLACK & DECKER INC., $72.05, New York symbol SWK, has agreed to buy Sweden’s Niscayah Group AB. Niscayah designs and installs security systems, including surveillance cameras and fire alarms, for a wide variety of businesses.

This is a big purchase for Stanley, which will pay $1.2 billion for Niscayah, including assumed debt. That’s 94% more than the $619.3 million, or $4.12 a share, that Stanley earned in 2010. The company holds cash of $1.9 billion, so it can easily pay for this purchase without having to sell shares, which would dilute the ownership of existing shareholders.

Stanley’s all-cash offer tops an all-stock bid for Niscayah from a rival firm in Sweden. Stanley already owns 5.8% of Niscayah, and holders of 19.5% of Niscayah’s shares have accepted Stanley’s offer. Stanley hopes to complete the purchase in the next few months.

The company feels it can cut its annual costs by $80 million, including $40 million in the first year, by combining plants and distribution networks. That should add $0.20 a share to Stanley’s annual earnings in the first year, rising to $0.45 a share by the third year.

Stanley Black & Decker is a buy.

MICROSOFT CORP., $26.00, Nasdaq symbol MSFT, rose 7% this week in response to two events.

First, the U.S. Supreme Court decided to throw out a California law that banned the sale or rental of violent video games to minors. That should improve the prospects of Microsoft’s Xbox business, particularly as more users, including many younger players, download games instead of buying them in a store.

Second, Microsoft launched its new Office 365 service, which lets businesses use online versions of the company’s Office suite of software (including word processing and spreadsheet programs). Users can then store their documents and other information on remote servers, and access their files over the Internet.

Microsoft will charge a low monthly fee for this service. That should appeal to small businesses that lack the funds to buy the full version of Office.

As well, the company feels that the popularity of its Office programs will give this online version an advantage over competing services, such as those offered by Internet-search provider Google Inc. (Nasdaq symbol GOOG).

Microsoft is still a hold.

VISA INC., $84.26, New York symbol V, jumped 15% this week after the Federal Reserve announced new rules governing the fees retailers pay banks when they accept debit cards. Visa gets about 20% of its revenue from processing debit transactions in the U.S.

Right now, the average fee is $0.44 a transaction. Under the new rules, retailers will pay $0.21 a transaction. That’s a substantial cut, but it’s still better than the $0.12 fee that the Federal Reserve proposed in December 2010. The new fees should take effect in October 2011.

Visa is still a buy.

GENERAL MILLS INC., $37.22, New York symbol GIS, is one of the world’s largest food makers. Its top brands include Big G (cereal), Green Giant (canned and frozen vegetables), Pillsbury (baking dough), Old El Paso (tacos) and Progresso (soups and sauces).

In its 2011 fiscal year, which ended May 29, 2011, General Mills’ revenue rose 1.7%, to $14.9 billion from $14.6 billion in the previous year. Earnings rose 17.5%, to $1.8 billion from $1.5 billion. The company spent $1.2 billion on share buybacks in the latest fiscal year. Because of fewer shares outstanding, earnings per share rose 20.5%, to $2.70 from $2.24.

If you exclude gains and losses on hedging contracts that General Mills uses to lock in prices for corn, wheat and other ingredients, earnings per share would have risen 7.8%, to $2.48 from $2.30. That matched the consensus estimate.

Higher volumes and selling prices were the main reasons for the revenue increase. Earnings benefited from a 7% decline in advertising spending, compared to a 24% increase in fiscal 2010. Rising ingredient and energy prices continued to put pressure on earnings growth.

As well, the company raised its quarterly dividend by 8.9%, to $0.305 a share from $0.28. The new annual rate of $1.22 yields 3.3%. General Mills has paid dividends for 112 straight years, and has never cut its payout.

General Mills is a buy.

MACY’S INC., $29.24, New York symbol M, gets most of its sales from its 850 Macy’s and Bloomingdale’s department stores in the U.S.

The company now aims to expand its international presence. This week, it began shipping goods ordered on its web site to 91 countries outside the U.S.

U.S. retailers have had an easier time selling to overseas customers in the past few years. That’s because modern credit-card systems now make it easier to process payments in many currencies, as well as pay local taxes and duties. Moreover, large international courier firms continue to speed up deliveries, so customers are getting their goods more quickly.

Macy’s is a buy.

FAIR ISAAC CORP., $30.20, New York symbol FICO, sells products and services that help businesses around the world analyze customer data, and make better decisions on customer creditworthiness.

One of these products is its FICO Triad Customer Manager software, which is used to manage 65% of the world’s credit cards. The company believes this software can increase a client’s revenue by up to 30%, cut delinquencies by 25%, and increase interest income by 25%.

Fair Isaac continues to win new clients for this software. For example, Beijing-based China Everbright Bank will now use FICO Triad Customer Manager for its credit-card operations. That will help the bank sell more of its products to its current customers, and respond to its cardholders more quickly.

China Everbright is one of the top 10 banks in China, with operations in 45 mainland cities, as well as Hong Kong. China Everbright Bank had issued 8.58 million credit cards by the end of 2010, up 34% from 2009.

Fair Isaac has worked with China Everbright on risk-management projects, but the Triad sale is the first time the company has worked with the bank’s credit-card business.

Fair Isaac is now a buy.

Our next Hotline will go out on Friday, July 8, 2011.