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Bear of the Day Article ArchiveSohu.com (SOHU) By Zacks Equity Research Nov 20, 2009 While Sohu.com's (SOHU) third-quarter earnings beat the Zacks Consensus estimate and were in line with the company s own guidance, the outlook for the fourth quarter was far below expectation. The company's operating expenses have been steadily going up, which we fear could limit the growth in earnings. Moreover, recent delays in game launches, weak ad spending, which is hurting the brand advertising revenue and intense competition pose a threat. Strength in its online games and portal business are expected to be the strongest drivers for growth beyond 2010.
Currently, we see limited upside for Sohu's revenue and earnings growth in the near term. We downgrade the stock to Underperform from our previous Neutral rating and set a six-month price target of $45.00. Medicines Co. (MDCO) By Zacks Equity Research Nov 19, 2009 The Medicines Company's (MDCO) third-quarter loss per share of 6 cents missed the Zacks Consensus Estimate of a loss of 5 cents. Although Angiomax continues to contribute significantly to revenues, we are concerned about the product losing exclusivity in the U.S. in September 2010. The entry of generics would be devastating for the company. Therefore, the onus is on management to acquire and develop the next generation of products to drive the top-line. One of those products was expected to be Cangrelor. However, the failure of the phase III CHAMPION program was a significant setback.
Meanwhile, the Cleviprex sales ramp has also been slow. We recommend avoiding the name until we gain more visibility on the Angiomax patent situation, the Cleviprex ramp and the future of Cangrelor and Oritavancin. Sears Holdings (SHLD) By Zacks Equity Research Nov 18, 2009 Sears Holdings' (SHLD) vulnerability to continued economic downturn is adversely affecting its top-line growth. The company recorded an 8.6% decline in same-store sales and closed 28 non-performing stores during fiscal 2009 second quarter amid a slump in the housing sector and sluggish apparel sales. Moreover, intense competition from giant discounters, mass merchants and regional stores coupled with the seasonality of business and exposure to foreign currency fluctuations severely undermine the company's future growth prospects and sustainability.
Consequently, we have changed the recommendation for the company from Neutral to Underperform as we anticipate it to perform well below the broader market. Hologic, Inc. (HOLX) By Zacks Equity Research Nov 17, 2009 Hologic, Inc. (HOLX) reported fourth quarter earnings of 28 cents per share, above the Zacks Consensus Estimate of 26 cents, but a couple of cents below the year-ago earnings. For fiscal 2009, the company earned $1.17 per share, a cent below the year-ago earnings. Revenues declined 8.9% in the reported quarter and 2% in fiscal 2009. We remain concerned about the decline, which is largely attributable to the stringent economic and capital spending environment.
Furthermore, Hologic's strategy to grow by acquisitions has inherent risks. Strong competition confronting the company's products also concerns us. Consequently, we downgrade the stock to Underperform with a price target of $14. Myriad Genetics (MYGN) By Zacks Equity Research Nov 16, 2009 Myriad Genetics Inc. (MYGN) reported first quarter fiscal 2010 earnings of 31 cents per share, which was below the Zacks Consensus Estimate by a penny. The company had earned 25 cents per share in the year-ago period. Myriad Genetics spun off its therapeutics business in July 2009 to focus on molecular diagnostics going forward. Although the molecular diagnostics business is performing well, we remain concerned about the slowdown in revenue growth in recent quarters.
The competition confronting Myriad Genetics products in the biotechnology and genetics testing field is also a concern. We have an Underperform rating on the stock. Triumph Group, Inc. (TGI) By Zacks Elite Analysts Nov 13, 2009 We maintain our Underperform rating on Triumph Group, Inc. (TGI) based on the belief that there will be no significant recovery in the delivery of new commercial aircraft in the medium term. A weak commercial OEM market is likely to continue for the coming months. Huge dependence on government spending as well as on Boeing, its largest customer, is also discouraging. Intense competition in the aerospace is likely to have an adverse impact on the company.
The company's strategy to grow through acquisition involves risks that could adversely affect the operating results, including difficulties in integrating its recently acquired business. Potash Corp. (POT) By Zacks Equity Research Nov 12, 2009 We downgrade Potash Corporation (POT), the world's leading producer of potash and fertilizer, to Underperform. The company has been hit hard by the global economic crisis, leading to weak demand and prices as farmers reduce their use of fertilizers. This has induced a sharp fall in profits for fertilizer producers. Potash Corp.'s earnings declined 79% in the third quarter of 2009. The company expects fertilizer demand to remain weak for the rest of 2009, and plans to cut potash production. Potash Corp. has also lowered its expected earnings and slashed 2010 global potash demand expectations.
About 40% of global potash production capacity stands idle since the second half of 2008. The company also expects some of its capacity to remain curtailed in 2010. Molina Healthcare (MOH) By Zacks Equity Research Nov 11, 2009 Molina Healthcare, Inc. (MOH) reported third-quarter earnings of $0.33 per share, which was well below the Zacks Consensus Estimate of $0.53. The company earned $0.60 in the year-ago quarter. The decline in profit for the quarter was attributable to higher operating expenses coupled with losses from the company's California health plan. The increase in medical costs was attributable to the H1N1 flu virus and costs associated with recently enrolled members. The impact of the H1N1 epidemic is significant and has the potential to worsen in the coming quarters.
We are also concerned about the intense competition facing Molina. We have an Underperform rating on the stock with a price target of $19. Red Robin Gourmet Burgers (RRGB) By Zacks Equity Research Nov 10, 2009 Red Robin Gourmet Burgers (RRGB) is vulnerable to economic headwinds, and we believe that the stock will continue to underperform the restaurant industry. Impeding the growth is its sagging same-store sales and declining traffic counts. The company's third-quarter 2009 same-store sales fell 14.9%. The chain expects guest counts to remain negative, and expects restaurant-level operating margins to decline by 150 to 160 basis points in fiscal year 2009.
In addition, more than 50% of total restaurants are located in areas, which have been hit hard by the housing downturn and economic slowdown. This may dampen the company's growth potential. Sears Holdings (SHLD) By Zacks Equity Research Nov 09, 2009 Sears Holdings' (SHLD) vulnerability to the continued economic downturn is adversely affecting its top-line growth. The company recorded an 8.6% decline in same-store sales and closed 28 non-performing stores during the fiscal 2009 second quarter amid a slump in housing and sluggish apparel sales. Moreover, intense competition from giant discounters, mass merchants and regional stores, coupled with the seasonality of business and exposure to foreign currency fluctuations, severely undermine the company's future growth prospects and sustainability. Consequently, we have changed the recommendation for the company from Neutral to Underperform as we anticipate it to perform well below the broader market.
Canon, Inc. (CAJ) By Ian T. Gilson Nov 06, 2009 We believe the sharp appreciation of the yen is eroding Canon's (CAJ) revenue and profits. The company expects to improve profitability through product launches and cost-cutting efforts, and Canon has maintained its revenue and earnings forecast even though the third quarter was below expectations. We expect revenue in 2009 to be hurt by weak consumer spending and the poor global economy, and believe the company will struggle to meet expectations in fiscal 2010. We maintain our estimates for the full year 2009. 2011 estimates have been added.
We also maintain our Underperform recommendation on CAJ shares, but increased our six-month target price to $30.00. Corp. Executive Board (EXBD) By Sean P. Smith Nov 05, 2009 We maintain our Underperform rating on shares of The Corporate Executive Board (EXBD). While Q3 EPS beat expectations, the company continues to experience deterioration in key operating metrics, including contract value.
Given the current operating pressures, along with ongoing concerns regarding a slowing economy, we believe the shares should trade at a discount to the peer group average. As such, we anticipate that the company's shares should underperform the market in the near-term. Genzyme Corp. (GENZ) By Zacks Equity Research Nov 04, 2009 Genzyme (GENZ) reported third quarter earnings of 31 cents per share, in-line with the Zacks Consensus Estimate but well below the year-ago earnings of 53 cents per share. Moreover, revenues declined 9% to $1.06 billion. The company has been under significant pressure following the shutdown of its Allston manufacturing facility in June 2009. The shutdown is a major setback as three drugs -- including key product Cerezyme -- were being manufactured at the facility. Although Genzyme has resumed production, new lots will not be available until later this year.
The shutdown has affected the company s performance causing Genzyme to slash its outlook for 2009. Supply constraints, manufacturing issues and delays in new product launches will continue to weigh on the shares. We would avoid the name. Sohu.com (SOHU) By Zacks Equity Research Nov 03, 2009 While Sohu.com's (SOHU) third-quarter earnings beat the Zacks Consensus Estimate and were in line with the company's own guidance, the outlook for the fourth quarter was far below expectations. The company's operating expenses have been steadily going up, which we fear could limit the growth in earnings. Moreover, recent delays in game launches, weak ad spending -- which is hurting the brand advertising revenue -- and intense competition pose a threat. However, strength in its online games and portal business are expected to be the strongest drivers for growth beyond 2010.
Currently, we see limited upside for Sohu's revenue and earnings growth in the near term. We downgrade the stock to Underperform from our previous Neutral rating and set a six-month price target of $45.00. RC2 Corp. (RCRC) By Zacks Equity Research Nov 02, 2009 We are downgrading our recommendation on RC2 Corporation (RCRC) from Neutral to Underperform. While third quarter results were ahead of the Zacks Consensus Estimate, primarily due to the benefits of the cost containment initiatives, we note that the company has reported a drop in sales in the quarter. Also, the holiday season is expected to be a challenge as families are restricting their discretionary spending. Hence, we expect the company to continue to face a difficult operating environment in the near future.
Additionally, the loss of the Thomas & Friends license to Fisher-Price will likely prove to be a significant blow in 2010. Further, the chances of retaining the Wooden track system license when it expires in 2012 have been reduced, in our opinion. Genomic Health, Inc. (GHDX) By Zacks Equity Research Oct 30, 2009 Genomic Health Inc.'s (GHDX) lead product is Oncotype DX, which is used for early stage breast cancer patients to predict the likelihood of cancer recurrence. Even though sales of Oncotype remain robust and the company remains optimistic about its prospects, we are highly concerned about the company's reliance on the product for growth. We believe that Genomic needs to expand its product portfolio in order to sustain growth.
Furthermore, we are also concerned about the company's weak pipeline. These concerns have caused us to downgrade the stock to Underperform. Mack-Cali Realty (CLI) By Zacks Equity Research Oct 29, 2009 Mack-Cali (CLI) is a vertically integrated office REIT with assets in some very competitive markets which are getting worse in conjunction with the overall U.S. economy. Mack-Cali will have a difficult time holding occupancy and increasing rents due to the continued volatility in the office sector with increasing job cuts and decline in market fundamentals. In addition, we see no near-term growth catalyst for the company.
Our recommendation for Mack-Cali is Underperform as we anticipate it to perform well below the broader market. However, if Mack-Cali can weather the current storm, the share price may rise. Citi Trends, Inc. (CTRN) By Zacks Equity Research Oct 28, 2009 Citi Trends (CTRN) is exposed to continuing macroeconomic headwinds, which is adversely affecting its performance. The company recorded a 12.4% decline in same-store sales during fiscal 2009 second quarter, while its store expansion efforts dragged down operating results. Moreover, intense competition from other off-price retailers, mass merchants and smaller players is exerting immense pressure on the company s profitability. These factors severely undermine the company's future growth prospects and sustainability.
Our recommendation for the company is Underperform, as we anticipate it to perform well below the broader market. Embraer S.A. (ERJ) By Zacks Equity Research Oct 27, 2009 We are downgrading our recommendation on Embraer (ERJ) from Neutral to Underperform. The international economic environment remains an issue, considering the company's exposure to the U.S. and Europe. Moreover, the company's high concentration for some models, with primary focus on American airline companies, exposes it to considerable risks. However, lower oil prices compared to 2008 and the support of the Brazilian Government appear to be encouraging. We also remain optimistic about the strength in the company's aircraft family.
Nevertheless, the considerable strain on the Brazilian airport infrastructure will certainly impact the company's local sales. AGCO Corp. (AGCO) By Zacks Equity Research Oct 26, 2009 We are downgrading our rating on AGCO Corp. (AGCO) from Neutral to Underperform. The company is witnessing soft demand conditions in most of its markets due to the significant slowdown in the global economy. The near-term outlook for agricultural equipment is extremely uncertain, especially in Europe, which represents a major portion of the company's total revenue. Given the continued slowdown in the global economy, tighter credit markets and unfavorable foreign currency exchange rates, AGCO expects 2009 revenue to decline 20 23% from $8.4 billion in 2008.
Also, the company forecasts 2009 EPS in the range of $1.30 $1.50, compared to $4.09 in 2008 due to weak sales and lower margins. Iconix Brands Group (ICON) By Zacks Equity Research Oct 23, 2009 Iconix Brand Group's (ICON) specialty retail apparel sector has always been in demand from the consumers. However, it is grappling with the recession as macroeconomic headwinds are causing consumers to increase savings and defer new purchases. Consumers are trading down to cheaper alternatives or heavily discounted merchandise.
Further, management lowered its guidance, reflecting dilution related to the company's equity offering and the negative impact related to the transition of the Rocawear women's license to a new licensee. Therefore, we lowered our rating on the stock to Underperform, until we see any catalyst to trigger the company's growth trajectory. MetroPCS Communications (PCS) By Zacks Equity Research Oct 22, 2009 We downgrade our recommendation for MetroPCS (PCS) to Underperform, which reflects the company's disappointing results in the last quarter. Reported earnings missed the Zacks Consensus Estimate, partly due to higher operating expenses. Moreover, subscriber growth decelerated significantly on a sequential basis, hurt by intense competition in the prepaid wireless segment. MetroPCS contends with high churn (customer switch) levels due to increased customer defection as its larger peers continue to lure subscribers with competitive service plans and better product offerings.
We are also concerned about the highly leveraged balance sheet, which may limit the company's ability to invest in growth
initiatives moving forward. CONMED Corp. (CNMD) By Zacks Equity Research Oct 21, 2009 Conmed Corp. (CNMD) operates in highly competitive markets against competitors that are much larger, technically competent and possess substantially more assets. Additionally, many of these competitors offer a range of products not matched by Conmed, which may make Conmed's offerings less attractive to surgeons, hospitals, and group purchasing organizations that are trying to reduce the number of vendors they do business with. In the second quarter, earnings per share were $0.17, compared to the Zacks Consensus Estimate of $0.16 and the year-ago earnings of $0.43.
We have an Underperform rating on Conmed with a target price of $18. Rite Aid Corp. (RAD) By Steven Ralston Oct 20, 2009 Management at Rite Aid Corporation (RAD) was executing a turnaround strategy centered on increasing the profitability of the existing store base. However, the acquisition of Brooks Eckerd prior to a convincing turnaround in profitability has increased the debt burden and interest expense.
Moreover, Wal-Mart's foray into the retail generic drug market has pressured the company's pharmacy margin. Given the weakness
of front-end sales and management's continual lowering of EPS guidance (for larger net losses), the stock's rating remains Underperform. Red Robin Gourmet Burgers (RRGB) By Zacks Equity Research Oct 19, 2009 Red Robin Gourmet Burgers Inc. (RRGB) is vulnerable to economic headwinds, and we believe that the stock will continue to underperform the restaurant industry. Impeding the growth is its sagging same-store sales and declining traffic counts. The company's second-quarter 2009 same-store sales fell 11.5%. The chain expects guest counts to remain negative, and expects restaurant-level operating margins to decline by 50 to 80 basis points in fiscal year 2009.
In addition, more than 50% of total restaurants are located in areas, which have been hit hard by the housing downturn and economic slowdown. This may dampen the company's growth potential. Washington Federal (WFSL) By Zacks Equity Research Oct 16, 2009 Washington Federal's (WFSL) third quarter earnings were in line with the Zacks Consensus Estimate. However, the results significantly deteriorated from the prior-year quarter due to a huge increase in provision for loan losses, primarily in response to a deteriorating residential land and construction portfolio. Credit quality drastically worsened during the quarter. However, declining deposit rates helped improve funding concerns to a great extent and capital position remained strong.
Though margin expansion and increased market share through acquisitions will be a great support going forward, we are concerned about the company's significant exposure to real estate markets and suspect that it will continue to experience credit quality deterioration. Therefore, we recommend the shares as Underperform. Conmed Corp. (CNMD) By Zacks Equity Research Oct 15, 2009 Conmed (CNMD) operates in highly competitive markets against competitors that are much larger, technically competent and possess substantially more assets. Additionally, many of these competitors offer a range of products not matched by Conmed, which may make Conmed's offerings less attractive to surgeons, hospitals and group purchasing organizations that are trying to reduce the number of vendors they do business with. In the second quarter, earnings per share were 17 cents, compared to the Zacks Consensus Estimate of 16 cents and the year-ago earnings of 43 cents.
We have an Underperform rating on Conmed with a target price of $18. Rite Aid Corp. (RAD) By Steven Ralston Oct 14, 2009 Management at Rite Aid Corporation (RAD) was executing a turnaround strategy centered on increasing the profitability of the existing store base. However, the acquisition of Brooks Eckerd prior to a convincing turnaround in profitability has increased the debt burden and interest expense.
Moreover, Wal-Mart's foray into the retail generic drug market has pressured the company's pharmacy margin. Given the weakness of front-end sales and management's continual lowering of EPS guidance (for larger net losses), the stock's rating remains Underperform. Palm, Inc. (PALM) By Ian T. Gilson Oct 13, 2009 Although demand for Palm's (PALM) Pre smartphone is growing, it is still selling a small fraction of Pre phones to smart-phones users and, in our opinion, most of them are already existing Palm customers. We still expect the stock to underperform the market as RIMM and AAPL continue to expand market share, and phones based on the Android operating system enter the market.
We believe the maturing lifecycle of Centro, the slow ramp of its Windows Mobile-based product sales, and the time taken to add carriers to distribute its Treo products in the U.S. and global markets will continue to exert pressure on revenue and earnings. Hain Celestial (HAIN) By Zacks Equity Research Oct 12, 2009 The natural and organic food industry including Hain Celestial (HAIN) is facing the brunt of the economic slowdown and escalating costs. The ongoing turmoil and the battered financial market are exerting pressure on consumer disposable incomes triggering a shift in focus from higher priced organic products to cheaper private label brands. Consequently, retailers and distributors are being compelled to reduce inventories, thus exerting pressure on the company's sales growth. Furthermore, a strong U.S. dollar continues to moderate results, adversely impacting the top-line.
In the most recent quarter, earnings were well below the Zacks Consensus Estimate, and were down 17.6% year over year. Cadence Design Systems (CDNS) By Ian T. Gilson Oct 09, 2009 Cadence Design Systems (CDNS) reported weak results for the second quarter, and blamed the shortfall on softness in EDA spending. We expect that a turnaround is going to take time due to mounting financial problems leading to a lackluster growth. 3Q and 2009 guidance was not encouraging. Although Cadence is offering new products and taking cost-cutting measures, we are not confident in the company's ability to grow and show healthy fundamentals over the near term. Cadence also withdrew its bid for Mentor Graphics in 2008, further dimming its growth prospects.
Cadence recently came out with enhanced versions of its products, but it will take time for these to generate additional revenue. 2011 estimates have been added. We maintain an Underperform rating on the shares a six-month price target of $4.50. Washington Federal (WFSL) By Zacks Equity Research Oct 08, 2009 Washington Federal's (WFSL) third quarter earnings were in line with the Zacks Consensus Estimate. However, the results significantly deteriorated from the prior-year quarter due to a huge increase in provision for loan losses, primarily in response to a deteriorating residential land and construction portfolio. Credit quality drastically worsened during the quarter. However, declining deposit rates helped improve funding concerns to a great extent and capital position remained strong.
Though margin expansion and increased market share through acquisitions will be a great support going forward, we are concerned about the company's significant exposure to real estate markets and suspect that it will continue to experience credit quality deterioration. Therefore, we recommend the shares as Underperform. Developers Diversified (DDR) By Zacks Equity Research Oct 07, 2009 Developers Diversified (DDR) has a relatively high leverage compared to its peers due to acquisitions over the past several years. Developers Diversified is raising cash through asset sales, debt, and by selling 30 million shares and additional warrants to the Otto family, a shopping center developer in Germany.
The equity sale is dilutive and the long-term sustainability of the company is under doubt. Our recommendation for the company is Underperform as we anticipate it to perform well below the broader market. Wilmington Trust (WL) By Zacks Equity Research Oct 06, 2009 Wilmington Trust's (WL) second-quarter earnings came in ahead of the Zacks Consensus Estimate, aided by strong growth in client services business and improvement in net interest margin. However, credit quality deteriorated drastically during the reported quarter. In 2009, both S&P and Moody's lowered their outlooks on the company to negative and downgraded the ratings based on concerns related to its real estate lending concentration. Though loan growth has been impressive relative to many of its peers in the past, the pace of growth has started to moderate in the last few quarters.
We expect the pace to slow down further in the near to medium-term, based on the ongoing weakness in the economy. Thus, we are maintaining our Underperform recommendation. Cadence Design Systems (CDNS) By Ian T. Gilson Oct 05, 2009 Cadence Design Systems (CDNS) reported weak results for the second quarter, and blamed the shortfall on softness in EDA spending. We expect that a turnaround is going to take time due to mounting financial problems leading to a lackluster growth. 3Q and 2009 guidance was not encouraging. Although Cadence is offering new products and taking cost-cutting measures, we are not confident in the company's ability to grow and show healthy fundamentals over the near term. Cadence also withdrew its bid for Mentor Graphics in 2008, further dimming its growth prospects.
Cadence recently came out with enhanced versions of its products, but it will take time for these to generate additional revenue. 2011 estimates have been added.We maintain an Underperform rating on the shares a six-month price target of $4.50. Wilmington Trust (WL) By Zacks Equity Research Oct 02, 2009 Wilmington Trust's (WL) second-quarter earnings came in ahead of the Zacks Consensus Estimate, aided by strong growth in client services business and improvement in net interest margin. However, credit quality deteriorated drastically during the reported quarter. In 2009, both S&P and Moody's lowered their outlooks on the company to negative and downgraded the ratings based on concerns related to its real estate lending concentration. Though loan growth has been impressive relative to many of its peers in the past, the pace of growth has started to moderate in the last few quarters.
We expect the pace to slow down further in the near to medium-term, based on the ongoing weakness in the economy. Thus, we are maintaining our Underperform recommendation. Developers Diversified (DDR) By Zacks Equity Research Oct 01, 2009 Developers Diversified (DDR) has a relatively high leverage compared to its peers due to acquisitions over the past several years. Developers Diversified is raising cash through asset sales, debt, and by selling 30 million shares and additional warrants to the Otto family, a shopping center developer in Germany. The equity sale is dilutive and the long-term sustainability of the company is under doubt. Our recommendation for the company is Underperform as we anticipate it to perform well below the broader market.
However, if Developers Diversified can tide over the current storm, the share price can rise. Our six-month target is $9.00 per share. Hain Celestial (HAIN) By Zacks Equity Research Sep 30, 2009 The natural and organic food industry including Hain Celestial (HAIN) is facing the brunt of the economic slowdown and escalating costs. The ongoing turmoil and the battered financial market are exerting pressure on consumer disposable incomes triggering a shift in focus from higher priced organic products to cheaper private label brands. Consequently, retailers and distributors are being compelled to reduce inventories, thus, exerting pressure on the company s sales growth.
Furthermore, a strong U.S. dollar continues to
moderate results, adversely impacting the top-line. In
the most recent quarter, earnings were well below the
Zacks Consensus Estimate, and were down 17.6%
year over year. Canon, Inc. (CAJ) By Ian T. Gilson Sep 29, 2009 We believe the sharp appreciation of the yen is eroding Canon Inc.'s (CAJ) revenue and profits. The company expects to improve profitability through product launches and cost-cutting efforts. The company also lowered its revenue forecast but earnings forecast remained unchanged for the full year 2009, which is still below the 2008 level. We expect revenue in 2009 to be hurt by weak consumer spending and worsening global economy and believe the company will struggle to meet expectations in fiscal 2009.
We maintain our estimates for the full year 2009. We also maintain our Sell recommendation on CAJ shares but increased our six-month target price to $30.00. Cadence Design Systems (CDNS) By Ian T. Gilson Sep 28, 2009 Cadence Design (CDNS) reported weak results for the second quarter, and blamed the shortfall on softness in EDA spending. We expect that a turnaround is going to take time due to mounting financial problems leading to a lackluster growth. 3Q and 2009 guidance was not encouraging. Although Cadence is offering new products and taking cost-cutting measures, we are not confident in the company's ability to grow and show healthy fundamentals over the near term. Cadence also withdrew its bid for Mentor Graphics in 2008, further dimming its growth prospects.
Cadence recently came out with enhanced versions of its products, but it will take time for these to generate additional revenue. 2011 estimates have been added. We maintain an Underperform rating on the shares a six-month price target of $4.50. Developers Diversified (DDR) By Zacks Equity Research Sep 25, 2009 Developers Diversified (DDR) has a relatively high leverage compared to its peers due to acquisitions over the past several years. Developers Diversified is raising cash through asset sales, debt and by selling 30 million shares and additional warrants to the Otto family, a shopping center developer in Germany. The equity sale is dilutive and the long-term sustainability of the company is under doubt. Our recommendation for the company is Underperform as we anticipate it to perform well below the broader market.
However, if Developers Diversified can ride out the current storm, the share price may at some point begin to rise. Hain Celestial (HAIN) By Zacks Equity Research Sep 24, 2009 The natural and organic food industry including Hain Celestial (HAIN) is facing the brunt of the economic slowdown and escalating costs. The ongoing turmoil and the battered financial market are exerting pressure on consumer disposable incomes, triggering a shift in focus from higher priced organic products to cheaper private label brands. Consequently, retailers and distributors are being compelled to reduce inventories, thus exerting pressure on the company's sales growth. Furthermore, a strong U.S. dollar continues to moderate results, adversely impacting the top-line.
In the most recent quarter, earnings were well below the Zacks Consensus Estimate, and were down 17.6% year over year. We recently lowered our recommendation to Underperform. Valero Energy (VLO) By Zacks Equity Research Sep 23, 2009 We reiterate our Underperform rating for Valero Energy (VLO) shares as a combination of weak demand, excess production capacity and narrowing crude quality spreads are expected to weigh on near-term margins. In addition to the near-term margin issues, commissioning of new refineries and extension projects indicate future struggle as global demand for almost all fuel products (except gasoline) is trending down.
The medium- to long-term outlook also remains cloudy, with unfavorable regulatory changes
(growing biofuel mandates) weighing on demand growth and limiting margin gains. Being the largest independent refiner, Valero remains particularly exposed to this unfavorable macro backdrop. Cadence Design Systems (CDNS) By Ian T. Gilson Sep 22, 2009 Cadence Design Systems (CDNS) reported weak results for the second quarter, and blamed the shortfall on softness in EDA spending. We expect that a turnaround is going to take time due to mounting financial problems leading to a lackluster growth. Third quarter and 2009 guidance was not encouraging. Although Cadence is offering new products and taking cost-cutting measures, we are not confident in the company s ability to grow and show healthy fundamentals over the near term. Cadence also withdrew its bid for Mentor Graphics in 2008, further dimming its growth prospects.
Cadence recently came out with enhanced versions of its products, but it will take time for these to generate additional revenue. 2011 estimates have been added. We maintain an Underperform rating on the shares a six-month price target of $4.50. Canon, Inc. (CAJ) By Ian T. Gilson Sep 21, 2009 We believe the sharp appreciation of the yen is eroding Canon's (CAJ) revenue and profits. The company expects to improve profitability through product launches and cost-cutting efforts. The company also lowered its revenue forecast but the earnings forecast remained unchanged for the full year 2009, which is still below the 2008 level. We expect revenue in 2009 to be hurt by weak consumer spending and the worsening global economy, and believe the company will struggle to meet expectations in fiscal 2009.
We maintain our estimates for the full year 2009. We also maintain our Sell recommendation on CAJ shares but increased our six-month target price to $30.00. Developers Diversified (DDR) By Zacks Equity Research Sep 18, 2009 Developers Diversified (DDR) has a relatively high leverage compared to its peers due to acquisitions over the past several years. Developers Diversified is raising cash through asset sales, debt, and by selling 30 million shares and additional warrants to the Otto family, a shopping center developer in Germany.
The
equity sale is dilutive and the long-term sustainability
of the company is under doubt. Our recommendation
for the company is Underperform as we anticipate it
to perform well below the broader market. However,
if Developers Diversified can tide over the current
storm, the share price can rise. Hain Celestial (HAIN) By Zacks Equity Research Sep 17, 2009 The natural and organic food industry including Hain Celestial (HAIN) is facing the brunt of the economic slowdown and escalating costs. The ongoing turmoil and the battered financial market are exerting pressure on consumer disposable incomes triggering a shift in focus from higher priced organic products to cheaper private label brands. Consequently, retailers and distributors are being compelled to reduce inventories, thus, exerting pressure on the company's sales growth. Furthermore, a strong U.S. dollar continues to moderate results, adversely impacting the top-line.
In
the most recent quarter, earnings were well below the
Zacks Consensus Estimate, and were down 17.6%
year over year. Zions Bancorporation (ZION) By Zacks Equity Research Sep 16, 2009 Given the high competitive pressures in the banking industry, we expect continuous deposit pricing pressures as well as growth in higher cost funding accounts to weigh on Zions Bancorporation's (ZION) net interest margins (NIM), creating headwinds on the revenue front. Loan growth has remained solid, but slowing growth in core deposits could cause a negative mix shift, another setback for the NIM. Management expects deposit growth to continue to lag loan growth and that a portion of future loan growth may be funded from alternative higher cost funding sources. The growth through acquisition model exposes the company to the risk of overpaying for targets. We are concerned about Zions commercial real estate (CRE) exposure. CRE represents over one-third of Zions overall loan portfolio. Continued weakness in the residential development and construction activity in the southwest has resulted in further deterioration of credit metrics in the past several quarters. Given the sluggish economic conditions, we expect credit to further deteriorate across the industry in the coming quarters. Zions has faced several downgrades by credit rating agencies, primarily reflecting significant net losses, continued deterioration in credit quality and material decline in its tangible common equity capital ratio. Based on our concerns for further credit deterioration, particularly in the construction portfolio, we are maintaining our Underperform recommendation on the stock. Valero Energy (VLO) By Zacks Equity Research Sep 15, 2009 We reiterate our Underperform rating for Valero (VLO) shares as a combination of weak demand, excess production capacity and narrowing crude quality spreads are expected to weigh on near-term margins. In addition to the near-term margin issues, commissioning of new refineries and extension projects indicate future struggle as global demand for almost all fuel products (except gasoline) is trending down.
The medium to long-term outlook also
remains cloudy, with unfavorable regulatory changes
(growing biofuel mandates) weighing on demand growth
and limiting margin gains. Being the largest independent
refiner, Valero remains particularly exposed to this
unfavorable macro backdrop.
Valero Energy (VLO) By Zacks Equity Research Sep 14, 2009 We reiterate our Underperform rating for Valero (VLO) shares as a combination of weak demand, excess production capacity and narrowing crude quality spreads are expected to weigh on near-term margins. In addition to the near-term margin issues, commissioning of new refineries and extension projects indicate future struggle as global demand for almost all fuel products (except gasoline) is trending down.
The medium to long-term outlook also
remains cloudy, with unfavorable regulatory changes
(growing biofuel mandates) weighing on demand growth
and limiting margin gains. Being the largest independent
refiner, Valero remains particularly exposed to this
unfavorable macro backdrop. Nabors Industries (NBR) By Zacks Equity Research Sep 11, 2009 Nabors Industries (NBR) second-quarter earnings of $0.32 per share topped the Zacks Consensus Estimate of $0.28 buoyed by stronger margins associated with new rig deployments in its international operations and solid performance from the Alaska sub-segment. However, results were significantly below year-earlier levels, reflecting a sustained slowdown in North American activity levels.
We remain concerned about
the North American land drilling scene and its impact
on Nabors, the largest onshore driller. This, coupled
with the company s relatively weak balance sheet in
an environment of continued credit market turmoil,
accounts for our Underperform recommendation. Assurant, Inc. (AIZ) By Zacks Equity Research Sep 10, 2009 Assurant's (AIZ) second-quarter earnings were worse than the Zacks Consensus Estimate, reflecting weak performance of all its business segments, a trend that is expected to remain in place for some time. The company's leading position in specialty markets, solid balance sheet and conservative investment approach are the clear positives in Assurant s business model. These positives are more than offset, however, by the significant downside risks including the loss of a major distribution or client relationship, higher-than-normal catastrophe losses, greater healthcare competition, irrational pricing, and deterioration in the manufactured housing industry.
Since the negatives outweigh the
positives, we have downgraded the shares to
Underperform from Neutral. China Eastern Airlines (CEA) By Ann Heffron Sep 09, 2009 To shore up its balance sheet, China Eastern (CEA) announced the sale of up to RMB1.35 billion new A shares and 490 million new Hong Kong dollar-denominated H shares to parent, China Eastern Air Holding Co. We continue to believe the fundamental outlook for airline carriers remains weak and a CEA/SAL tie-up will not change this. Both CEA and SAL shares are subject to special treatment, meaning that daily share price movements are limited to 5% on the Shanghai Stock Exchange.
Moreover, the shares could be delisted should CEA and SAL
continue to sustain losses in 2009. We reiterate our Underperform recommendation on China Eastern shares. Canon, Inc. (CAJ) By Ian T. Gilson Sep 08, 2009 We believe the sharp appreciation of the yen is eroding Canon's (CAJ) revenue and profits. The company expects to improve profitability through product launches and cost-cutting efforts. The company also lowered its revenue forecast but earnings forecast remained unchanged for the full year 2009, which is still below the 2008 level. We expect revenue in 2009 to be hurt by weak consumer spending and worsening global economy and believe the company will struggle to meet expectations in fiscal 2009.
We maintain our estimates
for the full year 2009. We also maintain our Sell
recommendation on CAJ shares but increased our six-month
target price to $30.00. Zions Bancorp (ZION) By Zacks Equity Research Sep 04, 2009 While Zions Bancorp (ZION) net interest margin and deposit growth remain satisfactory, credit quality continues to deteriorate, necessitating high levels of loss provisions. The company has been successful in enhancing capital ratios and making efforts on the cost control front, but the credit ratings agencies appear to be unimpressed. Ongoing weakness in the southwestern residential real estate markets, where the company has a significant exposure, continues to hurt the results.
Based on our concerns for further
credit deterioration, particularly in the construction
portfolio, we are maintaining our Underperform
recommendation on the stock. Cost Plus, Inc. (CPWM) By Rob Plaza Sep 03, 2009 Second quarter net sales for Cost Plus, Inc. (CPWM) declined 13.0% compared to the second quarter of last year, while same-store sales decreased 10.9%. The specialty retailer also reported a net loss of $20 million. The company is closing stores, cutting costs, and trying to preserve cash, but those moves will do little reverse its weak sales trends and merchandise margins. In addition, management s guidance for the third quarter cautioned investors to prepare for more of the same.
Cost Plus expects same-store sales to decrease 6%-
11% and a pre-tax loss from continuing operations of
$19-$24 million. We have an Underperform rating on
CPWM shares. Our six-month target price is $0.50. GameStop Corp. (GME) By Zacks Equity Research Sep 02, 2009 The video game industry, which surged ahead for a number of years, is now grappling with the recession. Heavy job losses and reduced access to credit markets have led to lower discretionary spending. This has resulted in lower demand for video game consoles and new software. This unfavorable backdrop was evident from GameStop's (GME) dismal recent results. Despite the weak environment, management expects the release of popular titles in the second half of 2009 to stimulate sales. We maintain an Underperform rating on the stock until we see an upturn in the company's growth trajectory. Assurant, Inc. (AIZ) By Zacks Equity Research Aug 31, 2009 Assurant's (AIZ) second-quarter earnings were worse than the Zacks Consensus Estimate, reflecting weak performance of all its business segments, a trend that is expected to remain in place for some time. The company's leading position in specialty markets, solid balance sheet and conservative investment approach are the clear positives in Assurant s business model.
These positives are more than offset, however, by the
significant downside risks including the loss of a major
distribution or client relationship, higher-than-normal
catastrophe losses, greater healthcare competition,
irrational pricing, and deterioration in the manufactured
housing industry. Since the negatives outweigh the
positives, we have downgraded the shares to
Underperform from Neutral.
Loews Corp. (L) By Zacks Equity Research Aug 28, 2009 Loews Corporation's (L) second-quarter income from continuing operations came in at 78 cents per share, substantially short of the Zacks Consensus Estimate. The lower-than-expected results primarily reflect higher net investment losses. However, underwriting performance was impressive during the quarter. A strong rebound in investment income primarily from improved limited partnership results, were also impressive during the quarter.
While the spin-off of Lorillard in 2008 eliminated
the company's overhang of tobacco litigation, we think
that the continuation of a stressed economic environment
will have a restrictive effect on the top-line growth of the
company. As such, the shares carry an Underperform
recommendation from us. KeyCorp (KEY) By Zacks Equity Research Aug 27, 2009 KeyCorp's (KEY) second-quarter net loss came in at 69 cents per share, substantially worse than the Zacks Consensus Estimate. The downside primarily resulted from preferred dividend payment and a significant increase in the provision for loan losses. Credit quality worsened significantly during the quarter. However, we are impressed by the company's steps to reduce its exposure to the commercial real estate (CRE) home builders business.
Though the company will benefited by exiting
the risky and unprofitable businesses, we expect elevated
provision requirements and a weak net interest to put
significant pressure on its profitability. As such, the shares
carry an Underperform recommendation from us. Cost Plus, Inc. (CPWM) By Rob Plaza Aug 26, 2009 First quarter sales and earnings per share for Cost Plus Inc. (CPWM) were slightly above our estimates. Even so, the company's sales declined 9% year-on-year and it reported a net loss of $20 million. The company is closing stores, cutting costs, and trying to preserve cash, but those moves will do little reverse its weak sales trends and merchandise margins. In addition, management's guidance for the second quarter cautioned investors to prepare for more of the same.
Cost Plus expects
same-store sales to decrease 9.5%-14.5% and a
pre-tax loss from continuing operations of $14-$21
million. We have an Underperform rating on CPWM
shares. Our six-month target price is 50 cents per share. Nabors Industries (NBR) By Zacks Equity Research Aug 25, 2009 Nabors Industries (NBR) second-quarter earnings of 32 cents per share topped the Zacks Consensus Estimate of 28 cents, buoyed by stronger margins associated with new rig deployments in its international operations and solid performance from the Alaska sub-segment. However, results were significantly below year-earlier levels, reflecting a sustained slowdown in North American activity levels. We remain concerned about the North American land drilling scene and its impact on Nabors, the largest onshore driller.
This, coupled
with the company's relatively weak balance sheet in
an environment of continued credit market turmoil,
accounts for our Underperform recommendation. Sunoco (SUN) By Zacks Equity Research Aug 24, 2009 Our Underperform recommendation on Sunoco (SUN) shares takes into account the bearish refining margin outlook. A growing supply overhang in the face of a recession-induced fall in global oil product demand has led to a squeeze in refiners profits. Sunoco's lack of geographic diversification and refining flexibility has also become a major liability, in our view. Weighed down by these factors, the company posted a second-quarter 2009 loss.
Overall, we see a fairly unfavorable macro backdrop for independent refiners like Sunoco. We believe this will cause Sunoco shares to underperform relative to the market as well as the sector in the coming quarters. KeyCorp (KEY) By Zacks Equity Research Aug 21, 2009 KeyCorp's (KEY) second-quarter net loss came in at 69 cents per share, substantially worse than the Zacks Consensus Estimate. The downside primarily resulted from preferred dividend payment and a significant increase in the provision for loan losses. Credit quality worsened significantly during the quarter. However, we are impressed by the company's steps to reduce its exposure to the commercial real estate (CRE) home builders business.
Though the company will benefit by exiting
its risky and unprofitable businesses, we expect elevated
provision requirements and a weak net interest to put
significant pressure on its profitability. As such, the shares
carry and Underperform recommendation from us.
King Pharmaceuticals (KG) By Zacks Equity Research Aug 20, 2009 Although King Pharmaceuticals' (KG) second-quarter results exceeded expectations with revenues increasing 12% from the year-ago period, we remain concerned about the declining prescription trends for key products over the past few quarters. In the second quarter of 2009, Altace prescriptions declined 82.7%, Skelaxin 18.2%, Avinza 7.9% and Levoxyl 12%. We believe Levoxyl and Altace prescriptions will continue declining in the face of generic competition. Meanwhile, we expect Sonata sales to decline significantly now that generics have hit the market. Thrombin-JMI is also facing intense pricing pressure with the entry of new competitors in the market. We also expect Skelaxin prescriptions to decline significantly in 2009 as King has reduced its promotional efforts for the product. Given that most of King s products are either facing generic competition or will be facing generics in the next few years, we believe the company s pipeline needs to deliver in order to drive future growth. In addition to generic competition, products like Altace and Sonata are also facing tough competition from branded products. Tesoro Corp. (TSO) By Zacks Equity Research Aug 19, 2009 Our Underperform recommendation on Tesoro (TSO) shares takes into account the bearish refining margin outlook. A growing supply overhang in the face of a recession-induced fall in global oil product demand has led to a squeeze in refiners profits. Tesoro's lack of geographic diversification and heavy exposure to the weak California market has also become a major liability, in our view. Weighed down by these factors, the company posted a second-quarter 2009 loss.
Overall, we see a fairly unfavorable macro backdrop for independent refiners like Tesoro. We believe this will cause Tesoro shares to underperform relative to the market as well as the sector in the coming quarters. Cost Plus, Inc. (CPWM) By Rob Plaza Aug 18, 2009 First-quarter sales and earnings per share were slightly above our estimates for Cost Plus, Inc. (CPWM). Even so, the company's sales declined 9% year-on-year and it reported a net loss of $20 million. The company is closing stores, cutting costs and trying to preserve cash, but those moves will do little to reverse its weak sales trends and merchandise margins. In addition, management's guidance for the second quarter cautioned investors to prepare for more of the same.
Cost Plus expects same-store sales to decrease 9.5%-14.5% and a pre-tax loss from continuing operations of $14-$21 million. We have an Underperform rating on CPWM shares. Our six-month target price is $0.50. Loews Corp. (L) By Zacks Equity Research Aug 17, 2009 Loews Corporation's (L) second-quarter income from continuing operations came in at $0.78 per share, substantially short of the Zacks Consensus Estimate. The lower-than-expected results primarily reflect higher net investment losses. However, underwriting performance was impressive during the quarter. A strong rebound in investment income primarily from improved limited partnership results, were also impressive during the quarter.
While the spin-off of Lorillard in 2008 eliminated the company's overhang of tobacco litigation, we think that the continuation of a stressed economic environment will have a restrictive effect on the top-line growth of the company. As such, the shares carry an Underperform recommendation from us. King Pharmaceuticals (KG) By Zacks Equity Research Aug 14, 2009 King Pharmaceuticals (KG) reported second quarter results of 32 cents per share, beating the Zacks Consensus Estimate of 38 cents. Although revenues increased 12% from the year-ago period, we remain concerned about the declining prescription trends of most of the company's key products. Moreover, King faced several regulatory setbacks and has yet to gain approval for its key pipeline candidate, Embeda. The delay in Embeda's approval has been frustrating and we expect investor focus to remain on this event.
While King is optimistic about gaining approval for Embeda later this year, non-approval would be a major blow. Pipeline setbacks, increasing competition, generic threats and declining prescription trends are likely to weigh on the stock. We have an Underperform rating on the shares. Sunoco (SUN) By Zacks Equity Research Aug 13, 2009 Our Underperform recommendation on Sunoco (SUN) shares takes into account the bearish refining margin outlook. A growing supply overhang in the face of a recession-induced fall in global oil product demand has led to a squeeze in refiners profits. Sunoco's lack of geographic diversification and refining flexibility has also become a major liability, in our view. Weighed down by these factors, the company posted a second-quarter 2009 loss.
Overall, we see
a fairly unfavorable macro backdrop for independent
refiners like Sunoco. We believe this will cause
its shares to underperform relative to the
market as well as the sector in the coming quarters. Canon, Inc. (CAJ) By Ian T. Gilson Aug 12, 2009 We believe the sharp appreciation of the yen is eroding Canon's (CAJ) revenue and profits. 2Q results were weak with revenue and earnings much below expectations. We expect revenue in 2009 to be hurt by weak consumer spending and a worsening global economy, and believe the company will struggle to meet expectations in fiscal 2009. We maintain our estimates for the full year.
We also maintain our Sell recommendation on CAJ shares with a six-month target price of $25.00. Loews Corp. (L) By Zacks Equity Research Aug 11, 2009 Loews Corporation's (L) second-quarter income from continuing operations came in at $0.78 per share, substantially short of the Zacks Consensus Estimate. The lower-than-expected results primarily reflect higher net investment losses. However, underwriting performance was impressive during the quarter. A strong rebound in investment income primarily from improved limited partnership results, were also impressive during the quarter. While the spin-off of Lorillard in 2008 eliminated the company's overhang of tobacco litigation, we think that the continuation of a stressed economic environment will have a restrictive effect on the top-line growth of the company.
As such, the shares carry an Underperform recommendation from us. Genzyme Corp. (GENZ) By Zacks Equity Research Aug 10, 2009 Genzyme Corp. (GENZ) has been under significant pressure following the shutdown of its Allston manufacturing facility in June 2009. The shutdown is a major setback for the company as three drugs including key product Cerezyme were being manufactured at the facility. Although Genzyme has resumed production, new lots will not be available for commercial supply until later this year. We believe the impact of this shutdown will affect the company's performance in the second half of the year. In fact, Genzyme recently slashed its outlook for 2009.
Supply constraints, manufacturing issues, and delays in new product launches will continue to weigh on the shares in the coming quarters. We would avoid the name. The Corp. Executive Board (EXBD) By Sean P. Smith Aug 07, 2009 We maintain our Underperform rating on shares of Corporate Executive Board (EXBD). While Q2 EPS beat expectations, we have again lowered our full-year estimates. The company continues to experience deterioration in its cross-sell ratio, and other key operating metrics, including contract value. Given the current operating pressures, along with ongoing concerns regarding a slowing economy, we believe the shares should trade at a discount to the peer group average.
As such, we anticipate that the company's shares will underperform the market in the near-term. BJ's Restaurants (BJRI) By Ann Northrop Aug 06, 2009 BJ's Restaurants, Inc. (BJRI) has grown rapidly with its unique concept and high-quality food offered at various price points, while maintaining some of the best unit economics in the industry. Same-store sales, although weak, are outperforming the peer group. Longer-term, however, we think BJ's 20%+ unit growth target could become unmanageable or difficult to fund. Since 2002, ROE/ROIC have averaged in the mid single-digits, with full-year results rising above 6% only once, when ROE reached 8% in 2005.
Returns on capital must improve to support long-term growth. Trading at a premium to its growth rate (26x 2010E), we believe BJRI shares are richly priced. Genzyme - GENZ By Zacks Equity Research Aug 05, 2009 We are initiating coverage on Genzyme (GENZ) with an Underperform rating and a price target of $45. The company faced a major setback recently when its Allston, Massachusetts, manufacturing facility had to be shut down temporarily due to contamination issues. While the closure of the plant led to a loss of $13 million in second quarter revenues, we believe the major impact of the shutdown will be felt in the second half of the year. Production of three key products, Cerezyme, Fabrazyme and Myozyme, will be affected by the plant shutdown. Sales of Cerezyme, which is a major contributor to the top-line, were already down in the second quarter of 2009 and we expect sales to be further impacted in the coming quarters. In fact, management slashed their guidance for Cerezyme to $750 million - $1 billion (previous guidance: $1.250 billion - $1.275 billion). Genzyme also reduced its guidance for Fabrazyme and Myozyme.
We were also disappointed to hear that there will be a significant delay in the company's commercialization of Lumizyme due to manufacturing issues. Genzyme is currently seeking FDA approval for Lumizyme - a decision is expected by November 14, 2009. Even if Lumizyme is approved at
that time, we anticipate a further delay in the commercialization of the product as Genzyme is planning to shift production of Myozyme/Lumizyme to its 4000L Belgium plant which is yet to receive FDA approval.We believe that FDA approval for the 4000L plant in Belgium is not likely to come before late March.
Celanese Corp. (CE) By Paul Raman Aug 04, 2009 Weak market conditions drove a dramatic decline in overall global demand for many industries, which affected Celanese's (CE) operations. Recessionary trends, coupled with inventory de-stocking, resulted in sharp volume declines in the Advanced Engineered Materials and the Acetyl Intermediates businesses.
The company expects volumes to remain under pressure in 2009, even with the easing of inventory de-stocking. Thus, we rate the shares a Sell with a target of $20.50. Cadence Design Systems - CDNS By Ian T. Gilson Aug 03, 2009 Cadence (CDNS) reported weak result for the second quarter, and blamed the shortfall on softness in EDA spending. We expect that a turnaround is going to take time due to mounting financial problems leading to a lackluster growth. 3Q and 2009 guidance was not encouraging. Although Cadence is offering new products and taking cost-cutting measures, we are not confident in the company s ability to grow and show healthy fundamentals. Cadence also withdrew its bid for Mentor Graphics in 2008, further dimming its growth prospects. Cadence recently came out with enhanced version of its products, but it will take time for these to generate additional revenue.
We maintain a Sell rating on the shares and re-iterate our six-month price target of $2.50
Cadence Design Systems - CDNS By Ian T. Gilson Aug 03, 2009 Cadence (CDNS) reported weak result for the second quarter, and blamed the shortfall on softness in EDA spending. We expect that a turnaround is going to take time due to mounting financial problems leading to a lackluster growth. 3Q and 2009 guidance was not encouraging. Although Cadence is offering new products and taking cost-cutting measures, we are not confident in the company s ability to grow and show healthy fundamentals. Cadence also withdrew its bid for Mentor Graphics in 2008, further dimming its growth prospects. Cadence recently came out with enhanced version of its products, but it will take time for these to generate additional revenue.
We maintain a Sell rating on the shares and re-iterate our six-month price target of $2.50
Cadence Design Systems - CDNS By Ian T. Gilson Aug 03, 2009 Cadence (CDNS) reported weak result for the second quarter, and blamed the shortfall on softness in EDA spending. We expect that a turnaround is going to take time due to mounting financial problems leading to a lackluster growth. 3Q and 2009 guidance was not encouraging. Although Cadence is offering new products and taking cost-cutting measures, we are not confident in the company s ability to grow and show healthy fundamentals. Cadence also withdrew its bid for Mentor Graphics in 2008, further dimming its growth prospects. Cadence recently came out with enhanced version of its products, but it will take time for these to generate additional revenue.
We maintain a Sell rating on the shares and re-iterate our six-month price target of $2.50
Cadence Design Systems - CDNS By Ian T. Gilson Aug 03, 2009 Cadence (CDNS) reported weak result for the second quarter, and blamed the shortfall on softness in EDA spending. We expect that a turnaround is going to take time due to mounting financial problems leading to a lackluster growth. 3Q and 2009 guidance was not encouraging. Although Cadence is offering new products and taking cost-cutting measures, we are not confident in the company s ability to grow and show healthy fundamentals. Cadence also withdrew its bid for Mentor Graphics in 2008, further dimming its growth prospects. Cadence recently came out with enhanced version of its products, but it will take time for these to generate additional revenue.
We maintain a Sell rating on the shares and re-iterate our six-month price target of $2.50
China Eastern Airlines (CEA) By Ann Heffron Aug 01, 2009 We are maintaining our Underperform rating on China Eastern Airlines (CEA). CEA reported 2009 first half earnings of RMB985 million, well above our estimate, reflecting a number of nonoperating items. These included gains of RMB831 million from an infrastructure levy refund and of RMB2,794 million on the fair value of fuel option contracts, partly offset by a RMB1,875 million decline in net exchange gains. To shore up its balance sheet, China Eastern also announced the sale of up to RMB1.35 billion new A shares and 490 million new Hong Kong dollar-denominated H shares to parent, China Eastern Air Holding Co.
We continue to believe the fundamental
outlook for airline carriers remains weak and a CEA/SAL tie-up will not change
this. Both CEA and SAL shares are subject to special treatment, meaning that
daily share price movements are limited to 5% on the Shanghai Stock
Exchange. Moreover, the shares could be delisted should CEA and SAL
continue to sustain losses in 2009. CEMEX (CX) By Claudio Freitas Jul 31, 2009 We are keeping our Sell rating on CEMEX, S.A. de C.V. (CX). The company posted weak results in the second quarter of 2009 with more than 50% decrease in net income year over year. The continued weak cement volumes in Spain and the U.S. are problematic. The short-term outlook for the company remains highly uncertain based on the prolonged downturns in the residential sector and tight credit conditions coupled with fall in the real estate prices throughout the world.
Moreover, the continuous increase in net debt is extremely concerning. Our six-month target is $8 per share. First Advantage (FADV) By Sean P. Smith Jul 30, 2009 We maintain our Sell rating on shares of First Advantage Corporation (FADV) following the release of Q2 results. Our $15.00 target price for FADV is reflects the current acquisition offer by First American, based on First American's current price. Should the deal not be finalized, we would expect downside risk for FADV. As such, we reiterate our Sell rating on the shares.
First Advantage is a provider of risk mitigation solutions. In the first quarter of 2009, FADV consolidated and realigned its business segments. The realigned business segments are as follows; credit services, data services, employer services, multifamily services, and investigative and litigation support services. Altria Group (MO) By Steven Ralston Jul 29, 2009 Altria Group (MO) is the leading domestic tobacco company, which generates significant cash flow and the stock has a high dividend yield. In an effort to expand into adjacent categories, Altria acquired UST, the world's leading moist smokeless tobacco manufacturer. However, the company is engaged in numerous tobacco liability suits. Several large punitive damage awards have been upheld, most recently the $79.5 million judgment in the Williams case in 2009.
In addition, the 150+% federal excise tax increase should dramatically reduce cigarette volume. A Sell rating is recommended. SanDisk Corp. (SNDK) By Ian T. Gilson Jul 28, 2009 SanDisk (SNDK) posted better-than-expected 2Q09 results based on increased pricing, but provided a conservative guidance for Q3. The company reduced its cost of production significantly. We believe this is a seasonally strong quarter for the company but maintaining its profitability tempo will be a tough challenge for the company. SanDisk also believes that industry pricing is likely to be stable to modestly down in the second half of the year. Samsung royalties will start impacting revenue in the second half of Q4.
The company has a history of losses, and a single quarter of good performance does not change our perception significantly. We therefore maintain our Sell rating on SNDK shares but increase our six-month price target to $10.00. Starwood Hotels & Resorts - HOT By Sean P. Smith Jul 27, 2009 We maintain our Sell rating on shares of Starwood Hotels and Resorts Worldwide (HOT). The shares have climbed significantly since bottoming out in early March. Industry fundamentals have continued to deteriorate, with year-to-date weekly revenue per available room, or RevPAR, down nearly 20% versus the year-ago period. On the second quarter conference call, management stated that the company expects RevPAR at same-store company-operated hotels worldwide to decline 20% in 2009. Additionally, the company anticipates that RevPAR will decline 25% at branded same-store owned hotels worldwide during 2009.
Although we believe that Starwood is well positioned for the long-term, we expect that operating
conditions will weaken further before improving. Our price target of $17.00 reflects a multiple of 9.0x our 2009 EBITDA estimate, and 26x our 2009 EPS estimate. BJ Services - BJ By Sheraz Mian Jul 24, 2009 We are reiterating our Sell rating on BJ Services (BJS shares to reflect our weak outlook for the North American pressure pumping market. While the current U.S. rig count is already down more than 50% from its all-time peak in August 2008, we see significant room for further decline in the coming months before the market stabilizes. This expected drop in the rig count will affect demand for pressure pumping services, which will continue to weigh on dayrates and margins into 2010, even as normal demand resumes towards the end of 2009, in our view. While the company should fare better than many of its smaller peers, given the size and scope of its operations and its strong financial health, it is nevertheless faced with pricing pressures and margin compression in the coming quarters.
Navigant Consulting - NCI By Sean P. Smith Jul 23, 2009 Utilization rates continue to decline, and bill rates are down as well. Navigant Consulting (NCI is taking steps to restructure its business, but the operating environment remains challenging. As we have maintained for some time, we expect Navigant s utilization rates to remain under pressure as clients continue to defer or forgo engagements. Companies in every industry are seeking to cut expenses wherever possible, and the operating climate for business consulting firms remains extremely challenging. Until we see further evidence that NCI can improve utilization rates and operating results, we believe that a premium valuation is unwarranted. Our price target of $9.00 reflects a multiple of 13x our 2009 estimate. As such, we continue to rate the shares a Sell at this time. Regis Corp. (RGS) By Sean P. Smith Jul 22, 2009 We maintain our Sell rating on shares of Regis Corp. (RGS). The offerings of common stock and convertible notes will likely strengthen the company's balance sheet and provide management with additional flexibility to withstand the economic recession.
However, these capital raises also significantly dilute current shareholders, and we note that the company's operating environment remains weak. As such, we maintain our Sell rating on the shares at this time. SurModics, Inc. (SRDX) By Grant Zeng Jul 21, 2009 SurModics (SRDX) provides surface modification and drug delivery technologies to medical device and pharmaceutical companies. Revenue continues to decline in fiscal 2Q09 and outlook for the whole fiscal year is bleak. Cypher stent sales from J&J declined dramatically again during the April-June quarter and will continue to fall in the coming quarters. This is certainly not good news to SRDX since revenue from Cypher sales makes significant contribution to the company's top line. The current economic environment also has a negative impact on the company's outlook.
Both revenue and EPS will decline in fiscal 2009 and 2010. As such, we maintain our Sell rating for the company with a price target of $15.50. Marriott International (MAR) By Sean P. Smith Jul 20, 2009 We maintain our Sell rating on shares of Marriott International (MAR) following the release of second quarter results. Although Q2 earnings results exceeded our expectation, we have lowered our full-year EPS estimate. The operating environment in the lodging sector is expected to remain weak throughout 2009, with substantial RevPAR declines forecasted.
Given our forecast for negative earnings growth in 2009, along with the ongoing uncertainty regarding the state of the economy and its potential impact on Marriott's lodging and timeshare businesses, we rate the shares a Sell at this time. Dell, Inc. (DELL) By Ian T. Gilson Jul 17, 2009 Dell (DELL) reported weak 1Q10 results with revenue and EPS below our estimates, with significant declines from the year ago quarter. Dell expects a modest decline in gross margin for 2Q, impacted by higher component costs, a competitive pricing environment, an unfavorable product mix and weak demand. Although the company expects 2Q revenue to increase sequentially, margins are expected to slide as consumers shift from expensive notebook computers towards cheap netbooks and laptops. Also, reduced IT spending as shown by the decrease in sales of PCs and cell phones over recent months is likely to have a major impact on Dell's server business.
We believe Dell will continue to struggle, posting inconsistent results in future quarters. We maintain our SELL rating with a six month target price of $8.00. Overstock.com (OSTK) By Rob Plaza Jul 16, 2009 Overstock.com (OSTK) reported a first quarter net loss of $0.09 per share, which was narrower-than-expected. The company's sales declined 8% year-over-year. Gross margin improved 280 basis points, which more than offset the 230 basis point increase in total operating expenses. Overstock.com reduced sales and marketing and technology expenses, but had a big increase in general and administrative expenses.
We think these results support our view that Overstock.com's cost structure is still too high relative to its gross profit margin. We reiterate our Sell rating and $5 target price. Stone Energy Group (SGY) By Sheraz Mian Jul 15, 2009 Our continued Sell recommendation on Stone Energy (SGY) shares reflects the company s weak competitive position in an unfavorable macro environment. We believe that Stone's asset portfolio, centered on the Gulf Coast/Gulf of Mexico regions and lacking meaningful exposure to the emerging shale plays, is not suited for the current environment of low commodity prices and restricted access to capital.
With a debt-heavy balance sheet (debt-to-capitalization ratio of 68.9%), Stone has limited financial flexibility in the current credit constrained
environment. Liberty Property Trust (LRY) By Greg Sukenik Jul 14, 2009 Office and industrial markets continue to weaken throughout the US. In the current environment, we do not favor suburban industrial/office companies as rental rates and occupancies will continue their downward spiral. Negative job growth trends will keep shares under pressure. Liberty Property (LRY) reported 1Q09 FFO of $0.72 per share vs. $0.80 in 1Q08. Overall leasing activity slowed during the quarter. To increase liquidity LRY has been raising capital through asset sales, equity issuance, and property level debt. The company now has plenty of liquidity to address near-term debt maturities. LRY has revised its 2009 FFO guidance from $3.00 - $3.20 per share to $2.70 - $2.90 due to dilution from new shares. We maintain our Sell rating based primarily on macroeconomic factors. Xtent, Inc. (XTNT) By Christopher Titus Jul 13, 2009 Xtent, Inc.'s (XTNT) Custom NX drug eluting stent (DES) Systems treats coronary artery disease (CAD), the leading form of cardiovascular disease and major cause of death in the U.S. and Europe. CAD accounts for over 650,000 annual deaths and affects over 13 million people in the U.S. The company received CE mark approval for the product. However, commercialization of the product in Europe may be delayed due to the company's shortage of funds.
As such, we lowered our near-term revenue estimates and downgraded this stock to a Sell. Internap Networks (INAP) By Ian T. Gilson Jul 10, 2009 Internap Network Services (INAP) reported weak Q1 2009 results. Although the company has been gaining traction in its data center services, it is witnessing softness in its content delivery network (CDN) and Internet Protocol (IP) business. Much of this has been caused by the weakening economy, which resulted in a higher churn rate, longer sales cycle and customer reduction in Q109. Though the company is winning over new customers and making important upgrades to CDN, performance has been lackluster for the last few quarters.
Thus, we reiterate our Sell rating on INAP with a price target of $2.50. Altria Group (MO) By Steven Ralston Jul 09, 2009 Altria Group (MO) is the leading domestic tobacco company, which generates significant cash flow and the stock has a high dividend yield. In an effort to expand into adjacent categories, Altria acquired UST, the world's leading moist smokeless tobacco manufacturer. However, the company is engaged in numerous tobacco liability suits. Several large punitive damage awards have been upheld, most recently the $79.5 million judgment in the Williams case in 2009.
In addition, the 150+% federal excise tax increase should dramatically reduce cigarette volume. A Sell rating is recommended. Zions Bancorp (ZION) By Neena Mishra Jul 08, 2009 Zions Bancorp. (ZION) is scheduled to release its 2Q09 earnings results on July 20, 2009, with a conference call later that evening. Recently the company was downgraded by S&P and Fitch Ratings. Ongoing weakness in the southwestern residential real estate markets, where the company has a significant exposure, continues to hurt the results.
Ahead of 2Q09 results, we have lowered our EPS estimates, based on our concerns for further credit deterioration. We are maintaining our Sell recommendation on the shares. Cousins Properties (CUZ) By Greg Sukenik Jul 07, 2009 Cousins Properties (CUZ) reported 1Q FFO of $0.15 per share, $0.10 lower than our estimates due to higher expenses and lower top line revenue. CUZ has a concentration of assets in Atlanta and Dallas, two markets with increasing downtown and suburban office vacancies. In addition, the company s retail portfolio continues to struggle. While the company's office portfolio performed relatively well in the 1st quarter, we think operations will deteriorate.
The dividend was cut 32% in an effort to conserve cash. Another cut could be coming in 2009 if conditions do not improve. MBIA, Inc. (MBI) By Eric Rothmann Jul 06, 2009 MBIA (MBI) reported net income of $3.34 per share in 1Q09 compared to a net loss of $12.92 per share in 1Q08. However, results benefited primarily from the mark-to-market adjustments in the insured portfolio, which is not expected to continue. We have yet to see any real positive fundamental improvement, and don't expect any to occur in the near term. Rating issuers further downgraded MBIA and its subsidiaries, and a group of financial institutions are challenging the company's recent restructuring efforts. All these points complicate and add to the uncertainties.
The deteriorating insured portfolio and turbulent financial market only magnifies the threat. We maintain our Sell recommendation for MBIA, seeing no signs of relief over the medium term. Palm, Inc. (PALM) By Ian T. Gilson Jul 02, 2009 Although 4Q09 revenue declined by 70.7% y-o-y and the loss increased y-o-y, results for Palm, Inc.'s (PALM) quarter were better than expected due to the ramp up in Treo Pro shipments and strong domestic and international carrier interest in its Web OS platform. Although Palm has had some initial success with the Pre, its next-gen phone, we have doubts on its success as it competes with several much larger competitors such as BlackBerry and iPhone. As the Palm Pre was launched in June, we expect that its impact will be better reflected in the first quarter of fiscal 2010.
Palm has struggled to match supply with demand for the new handset. We have a low confidence on long-term prospects, so we reiterate our Sell rating on Palm but raise our six-month price target to $8.00. Canon Inc. - CAJ By Ian T. Gilson Jun 29, 2009 We believe the sharp appreciation of the yen is eroding Canon's (CAJ) revenue and profits. Canon's first-quarter 2009 results were mixed with revenue below expectations while earnings slightly exceeding our expectation. The company expects to improve profitability through product launches and cost cutting efforts. As a result CAJ raised its earnings forecast for the full year 2009, still below 2008 level. We expect revenue in 2009 to be hurt by weak consumer spending and believe the company will struggle to meet expectations in fiscal 2009. We maintain our estimates for the full year 2009. Given this, we don't see room for meaningful appreciation from current levels. We maintain our Sell recommendation on CAJ with a 6-month target price of $25.00. This price is based on a P/E multiple of 26.6x our EPADR estimate of $0.94 for 2009, a discount to the industry mean.
Red Robin Gourmet Burgers (RRGB) By Ann Northrop Jun 29, 2009 We believe shares of Red Robin Gourmet Burgers (RRGB) will continue to underperform both the larger market and the restaurant industry. Red Robin's traffic began declining long before the onset of rising gas prices in October 2007, which began choking business in the casual dining sector -- a victim of poor site selection in new markets. In spite of their poor performance, the company has retained and even added to these sites as it repurchased 45 franchises since 2005.
Moreover, 2009 consensus EPS estimates are 10% higher than ours, and we think our estimate may prove aggressive if the economic slowdown is deeper or more protracted than we currently anticipate. Cemex (CX) By Claudio Freitas Jun 26, 2009 We are keeping our Sell rating on CEMEX, S.A. de C.V. (CX). The company posted weak results in the first quarter of 2009 with net income of just US$3 million. The continued weak cement volumes in Spain and U.S. are problematic. The short-term outlook for the company remains highly uncertain based on the downtrend in the residential, industrial/commercial and the infrastructure sectors as well as due to the fall in the real estate prices throughout the world. Moreover, the recent lawsuit filed against the company is problematic.
However, all efforts to reduce its costs and net debt in 2009 are encouraging. Nevertheless, the current credit crunch and the recession in the U.S. are matters of huge concern. Gerdau S.A. (GGB) By Claudio Freitas Jun 25, 2009 We are keeping our Sell recommendation on Gerdau S.A. (GGB) based on poor first quarter results and the worldwide crises. The company successfully renegotiated part of its debt and banks accepted to relieve some covenants. The company's strategy to grow through acquisitions based on debt created huge leverage and financial debt is expected to increase in the short-term. The huge decline in steel prices and the international economic slowdown creates a more challenging business environment for the steel industry.
The company's strategy to grow through acquisitions based on debt is contributing to the negative news. Moreover, huge exposure to the U.S. market during a recession is a major concern. Cadence Design Systems (CDNS) By Ian T. Gilson Jun 24, 2009 Cadence Design Systems (CDNS) reported weak results for 1Q 2009. We expect that a turnaround is going to take time due to mounting financial problems leading to a lackluster growth. The company provided guidance for a poor 2Q and 2009. Although Cadence is offering new products and taking cost-cutting measures, we are not confident in the company's ability to grow and show healthy fundamentals. Cadence has been losing share to Synopsys and is struggling through a downturn in the semiconductor cycle. Cadence also withdrew its bid for Mentor Graphics in 2008, further dimming its growth prospects.
Cadence recently came out with enhanced versions of its products, but it will take time for these to generate additional revenue. We maintain a Sell rating on the shares and reiterate our six-month price target of $2.50. CONMED Corp. (CNMD) By Christopher Titus Jun 23, 2009 CONMED Corp. (CNMD) is a major medical products manufacturer specializing in surgical instruments and devices. Approximately 59% of the company's revenues are derived from products designed for the orthopedic surgery markets of arthroscopy and powered surgical instruments. The company operates in highly competitive markets against competitors that are much larger, more technically competent and possess substantially more assets. Additionally, many of these competitors offer a range of products not matched by CNMD, which may make CNMD's offerings less attractive to surgeons, hospitals and group purchasing organizations that are trying to reduce the number of vendors they do business with.
We believe sales related to elective procedures will slow over the coming year, adversely affecting CNMD's business in 2009, despite that 77% of revenues are recurring from the sale of disposables. Rite Aid Corp. (RAD) By Steven Ralston Jun 22, 2009 Management at Rite Aid Corporation (RAD) was executing a turnaround strategy centered on increasing the profitability of the existing store base. However, the acquisition of Brooks Eckerd prior to a convincing turnaround in profitability has increased the debt burden and interest expense. Moreover, Wal-Mart's foray into the retail generic drug market has pressured the company's pharmacy margin.
Given the weakness of front-end sales, especially in the past fiscal year, and management's continual lowering of EPS guidance (for larger net losses), the stock's rating is a Sell. Embarq (EQ) By David Weissman Jun 19, 2009 We maintain our Sell rating for Embarq (EQ), the fourth largest local telephone service provider in the U.S., as access line loss continues to erode traditional voice revenue, largely resulting in decreasing consolidated sales in the last quarter (below our expectations). Line losses have been accelerated with deactivations among business customers due to weak economic conditions. EQ has received shareholder approval as well as the required state regulatory authorization for its consolidation with CenturyTel under an $11.6 billion merger deal (expected to close in 2Q 2009). We believe that the local phone business in North America, in particular service offered by regional carriers, has significant challenges ahead as consumers and business customers migrate to alternative solutions including VoIP, wireless and cable offerings.
Lower revenue forecasts for the second quarter of 2009 coupled with sustained access line losses support our thesis. We also believe pricing pressure and the need to invest further in broadband infrastructure may strain balance sheet conditions, considering EQ s limited liquidity and significant debt level. Patterson-UTI (PTEN) By Sheraz Mian Jun 18, 2009 Our continued Sell recommendation on Patterson-UTI (PTEN) shares reflects our expectation of a sustained softness in onshore drilling activities, resulting from a combination of commodity-price weakness, too much natural gas supply and recession-hit demand, particularly in the industrial sector. Patterson-UTI remains particularly vulnerable to this weak macro environment given its lack of contract coverage and heavy spot market exposure.
While the company remains in strong financial health, its recent decision to cut its quarterly dividend by 69% is a prudent move to conserve capital. SanDisk Corp. (SNDK) By Ian T. Gilson Jun 17, 2009 SanDisk (SNDK) continued with its revenue decline in Q1 coupled with a net loss, due to declines in license revenue, retail sales and pricing pressure. We expect the losses will continue in the rest of 2009 even with substantial cost-cutting and restructuring efforts. The company expects 2009 to remain challenging. We expect retail sales to be weak coupled with not-so-promising OEM demand due to the economic turmoil. Although the company has introduced some new products and renewed the cross license agreement with Samsung, we believe there might be risk of further downside and do not expect any meaningful earnings improvement in 2009.
We therefore maintain our Sell rating on SNDK shares with a six-month price target of $8.00. Sonic Innovations (SNCI) By Tom Park Jun 16, 2009 Sonic Innovations (SNCI) announced that its shareholders at the annual shareholder meeting approved a name change of the company to Otix Global, Inc, where Otix Global is to become the parent company of Sonic Innovations. SNCI filed with the Securities and Exchange Commission its Form 10-Q for the quarterly period ended March 31, 2009. Revenue from SNCI's German subsidiary is at risk of declining from unsuccessful attempts at renegotiating insurance contracts that is required as a result of new legislation passed by the Federal Council of Germany in Nov. 2008 that became effective April 1, 2009.
Our price target of $0.80 per share is based on a price-to-sales multiple of roughly 0.3x our FY09 sales estimate. School Specialty (SCHS) By Rob Plaza Jun 15, 2009 School Specialty's (SCHS) fiscal fourth quarter sales came in as expected, but the company's earnings easily beat our estimate thanks to strong cost-cutting efforts. The company did not provide specific guidance for fiscal year 2010, citing delays in the passage of state and school budgets. SCHS is highly dependent on state and local governments for its revenues, and many of those governments are dealing with falling tax receipts and rising budget deficits. The federal government's stimulus package should help, but there is no guarantee that those funds find their way into education.
As such, School Specialty's revenue could come in below even our pessimistic forecasts. We would continue to avoid SCHS shares because the company's future results will not be due to the execution of its business model -- they will be determined by decisions made by state and local governments. Trying to game spending by state and local governments is not a prudent investment strategy. ArthroCare (ARTC) By Christopher Titus Jun 12, 2009 ArthroCare (ARTC) develops, manufactures and markets products based on their patented Coblation technology. Coblation combines bipolar radiofrequency energy with a saline solution to gently and precisely remove soft tissue at low temperatures, typically 40 to 70 degrees Celsius. We recommend avoiding this stock until the company has resolved its ongoing issues - financial restatements, FBI probe and class action suits. The company's patented Coblation technology and other innovative, clinically superior surgical devices for the surgical treatment of soft-tissue conditions should help pull them from the mire once they emerge on the other side of the aforementioned issues.
The company has been unable to complete its financial statements for the quarter ended March 31, 2009 and does not expect to file them until the restatement process, the Audit Committee's review of the scope and nature of the Company's internal controls, and management's review of the effectiveness of internal control over financial reporting have been completed. Philips Electronics (PHG) By John Nelson Simon Jun 11, 2009 Given the reduced visibility in the global economy, which progressively deteriorated during the quarter, Koninklijke Philips Electronics N.V. (PHG) has decided to restructure businesses in all three sectors, which led to additional charges in the Q1FY09. This has caused us to reduce overall revenue growth rate to negative 7.73% in Euro terms, for 2009 compared to negative 2.2% recorded for 2008. The revenue growth rate in terms of dollars is projected at negative 17% for FY09 compared to 3.78% for FY08. The company is working to improve its cost structure and its EBITA margins have declined in 1Q09 due to restructuring charges booked.
Based on these results, we are maintaining our Sell rating on PHG with a price target of $17.00 or 24.9x 25.1x our 2009 EPADS
estimate of $0.68. Celanese (CE) By Paul Raman Jun 10, 2009 Celanese (CE) is a global hybrid chemical company based in Dallas. The company produces chemical substances and materials, and concentrates on four different business segments targeting the consumer and industrial products market. Weak market conditions drove a dramatic decline in overall global demand for many industries, which affected Celanese's operations. Recessionary trends, coupled with inventory destocking, resulted in sharp volume declines in the Advanced Engineered Materials and the Acetyl Intermediates businesses.
The company expects volumes to remain under pressure in 2009, even with the easing of inventory destocking. Thus, we rate the shares a Sell with a target of $16.00. Somaxon Pharmaceuticals (SOMX) By Jason Napodano Jun 09, 2009 On June 4, 2009, Somaxon (SOMX) announced that is has resubmitted the new drug application (NDA) to the U.S. FDA for Silenor (doxepin) for the treatment of insomnia. Despite this good news, we struggle to see how this drug can capture enough of the insomnia market to drive Somaxon to strong profitability. The insomnia market is dominated by generic molecules, and without an onset claim, Silenor will already lose out on approximately half the market. Plus, Somaxon is running dangerously low on cash. We estimate the current cash balance is only enough to fund operations until July 2009.
Therefore, we expect a highly dilutive (30-40%) capital raise in the next week or two. We have a Sell rating on the shares and a target price of $0.50. Central Garden & Pet Co. (CENT) By Steven Ralston Jun 08, 2009 Management at Central Garden & Pet Co. (CENT) is addressing a difficult environment of weak retail sales, adverse weather and higher costs, which have affected the company's sales and profitability. The benefits from the strategy of expanding the operating margin through a positive mix shift towards higher margin products and the optimization of the supply chain has taken hold in the second quarter of fiscal 2009. However, management continuously lowered both sales and earnings guidance throughout fiscal 2008, and sales were $15 million below expectations.
The shares of Central Garden & Pet are rated a Sell. This represents a 12 P/E multiple on trailing 12-month EPS. Patriot Capital (PCAP) By Neena Mishra Jun 05, 2009 Patriot Capital's (PCAP) 1Q09 NOI of $0.24 per share was a penny short of consensus. Net loss for the quarter came in at $0.50 per share, primarily due to $11.6 million of realized loss on investments. Though the overall credit quality remained stable, four of the portfolio companies were on non-accrual status. Further, the company has not been able to renew its revolving credit facility as yet, and is currently in negotiations with its lenders. As a result, the auditors have expressed doubt about PCAP as a going concern.
The company has also postponed its dividend payment decision and, we do not expect any dividend declaration in FY09. Based on the uncertainty and concerns surrounding the credit facility, we are maintaining our Sell recommendation on the shares. Valero Energy (VLO) By Sheraz Mian Jun 04, 2009 At the outset of the summer driving season, we are downgrading Valero (VLO) shares to Sell to reflect our weak outlook for margins and a growing list of medium- to long-term macro challenges. A combination of weak demand, excess production capacity, and narrowing crude quality spreads are expected to weigh on near-term margins. The medium- to long-term outlook also remains cloudy, with unfavorable regulatory changes weighing on demand growth and capacity creep limiting margin gains.
Being the largest independent refiner, Valero remains particularly exposed to this unfavorable macro backdrop. Our current target price is $15 per share. Eastern Chemical (EMN) By Paul Raman Jun 03, 2009 Eastman Chemical Company (EMN) is engaged in the manufacture and sale of chemicals, plastics and fibers. Based in Kingsport, Tennessee, the company has 12 manufacturing sites in the U.S., Europe, and Asia-Pacific, supplying products throughout the world. Eastman is witnessing rising raw material prices and a declining demand for its products. The company reported a 98% drop in earnings in the first quarter of 2009 driven by lower prices and volumes. Sales were considerably down in all the major segments.
Lack of free cash flow, PET capacity increases, coupled with slowing growth and PET industry overcapacity, force us to rate the stock a Sell with a target of $34.00. Syneron Medical, Ltd. (ELOS) By Christopher Titus Jun 02, 2009 Syneron Medical, Ltd. (ELOS) competes in the very competitive aesthetic devices market. With more than half of its sales derived from the United States, a weak economic outlook leads us to believe that sales growth will slow. As a result, we have reduced our revenue and EPS estimates.
Given the largely discretionary nature of the aesthetics laser business, the outlook could weaken further given current trends in the global economy. We are reducing out target price and recommending a Sell rating for this stock. Dell, Inc. (DELL) By Ian T. Gilson Jun 01, 2009 Dell, Inc. (DELL) reported discouraging 1Q10 results with revenue and EPS falling below our estimates, and significant declines from the year-ago quarter. The rapid decline in corporate profits, highly illiquid capital markets and the recessionary outlook are likely to dampen corporate capital spending. This is likely to have a major impact on Dell's server business. Adding to this is the continued decline in consumer spending as shown by the decrease in sales of PCs and cell phones over recent months. The company's marketing model of being the lowest priced supplier to the consumer in a declining market is likely to reduce margins over the coming quarters.
Although Dell is cutting costs, introducing new products and financing customers, given the uncertainty of the length of the current world-wide recession, we believe Dell will continue to struggle, posting inconsistent results in future quarters. We maintain our SELL rating with a new six-month target price of $8.00. St. Joe Co. - Joe By Greg Sukenik Jun 01, 2009 While operations continue to deteriorate, the company is currently focused on maintaining liquidity and cutting expenses. In addition, St. Joe Co. (JOE) has repaid most of its long-term debt and has sufficient cash reserves to get through the residential real estate slump. However, there are no signs that the housing situation will get better in the next 6 months and the worst could be yet to come. Near-term, we would stay away from companies with exposure to the residential building business. While we think the company could be a good long-term investment, we maintain our near-term Sell recommendation. Autoliv, Inc. (ALV) By Paul Raman May 29, 2009 Difficult conditions in North American and West European automotive markets are the primary concerns for Autoliv Inc. (ALV). The company reported net losses in the first quarter of 2009. In the second quarter of 2009, Autoliv expects consolidated sales to decline in the range of 40%-45%, with organic sales declining more than 30%. Operating margin for the second quarter of 2009 is expected to be negative by less than 3%, excluding restructuring costs and major customer defaults.
Moreover, pricing pressure from OEMs has stalled margin expansion. Hence, we rate the stock a Sell with a target price of $16.50.
Starwood Hotels & Resorts (HOT) By Sean P. Smith May 28, 2009 We are downgrading our rating on shares of Starwood Hotels & Resorts (HOT) from Hold to Sell. We continue to believe that Starwood's well-positioned portfolio will benefit given an increase in demand. However, we currently do not expect an improvement in the operating environment in the near term. Although demand situation continues to deteriorate considerably, the share price has more than doubled off of its lows reached in early March.
We consider the magnitude of this move to be
unwarranted. Our price target of $16.50 reflects a
multiple of 9.0x our 2009 EBITDA estimate, and
20.0x our 2009 EPS estimate. Wendy's/Arby's Group, Inc. (WEN) By Ann Northrop May 27, 2009 Wendy's (WEN) new management team, led by Arby's CEO, have outlined what we think is a viable, albeit multi-year turnaround plan that includes improving margins, reinvigorating the brand, revitalizing comps, and expanding internationally. However, Wendy's turnaround efforts come at a difficult time for the industry, which faces rising input costs and a deepening recession. Arby's, which serves pricier food, is being particularly hard hit, with comps falling 8.7% in 1Q09.
While we think there is a lot of low-hanging fruit for initial margin improvement, management's $100 million annual incremental store-level operating profit target will in our opinion take at least two years and necessitate executing on many levels.
California Pizza Kitchen (CPKI) By Ann Northrop May 26, 2009 We expect California Pizza Kitchen (CPKI) to continue to suffer declining traffic, de-leverage of its rent expense, and face shrinking ROEs well into 2H09. However, we expect CPKI to rebuild momentum in 2010 (primarily through unit growth), grow earnings at a mid-teens average rate over the next five years by adding full service restaurants in existing and new markets (at a rate of about 8%-10% annually), increase comps (we estimate +3% beginning in 2010) and restaurant margins through its new prototype restaurant design, repurchase shares, and build its lucrative Kraft frozen pizza licensing business.
Nevertheless, we
expect earnings to deteriorate for at least two
quarters with renewed growth dependent on the
economy, to which there is no visibility. Overseas Shipholding Group By Ann Heffron May 22, 2009 We are maintaining our Sell recommendation on Overseas Shipholding Group, Inc. (OSG), and raising our target price to $30. OSG reported first quarter diluted EPS before nonrecurring items of $1.03, above the $1.00 consensus, but below our $1.06 estimate as revenues came in weaker than expected from lower spot tanker rates, partly offset by increased revenue days. We are slashing our 2009 diluted EPS estimate to a loss of $0.45 per share from earnings of $2.10 per share, as we now believe the impact of the global economic slowdown will be more pronounced than previously expected. We have cut our 2009 revenue assumptions due to reduced estimates for spot market rates (roughly 45% of the company s fleet is exposed to the spot market) and fewer revenue days.
Our initial estimate
for 2010 is a $0.05 loss per share. While OSG recently
increased its dividend by 40%, we cannot rule out a
dividend cut in the event of a protracted economic
downturn. Align Technology (ALGN) By Christopher Titus May 21, 2009 Align Technology (ALGN) is engaged in the design, manufacture, and marketing of a proprietary system, Invisalign, for the treatment of crooked teeth. The company's business fundamentals are negatively affected by the current economic turbulence. As such, we expect revenue to decline in FY09. Furthermore, we think that the earnings quality could become an issue as management finds it difficult to meet growth targets.
We are recommending a Sell
rating for this stock. We think that the shares deserve to trade at 10% discount to the comparable
mean. This equates to a P/S multiple of approximately 2.0x and to a target price of $8.80. Motorola, Inc. (MOT) By David Weissman May 20, 2009 While we maintain our Sell rating for Motorola (MOT), we have adjusted our valuation target higher based on current market conditions. MOT is a leading manufacturer of mobile handsets, network infrastructure, and cable products. Revenue in the last reported quarter was significantly below our estimates due to continued weakness of the mobile handset sales. We are not convinced that a turnaround will take place without a major restructuring initiative as the company is exposed to lingering economic headwinds, lower overall worldwide demand for its handsets, a lack of high-end competitive PDA wireless devices, and reduced visibility for near-term revenue improvement.
However, stringent cost control measures taken by the
management and development of new smart-phone devices are
some initial positive indicators that will be monitored for longer-term
rating consideration. JC Penney (JCP) By Rob Plaza May 19, 2009 JC Penney (JCP) reported first quarter earnings per share that were at the high end of the company's guidance of $0.09- $0.11. Management anticipates a challenging environment for the rest of the year. Through the middle of May, JC Penney did not see any dramatic change in trends from the first quarter. For the second quarter, JCP expects sales to decrease 7%-10% with a net loss of $0.14 to $0.25 per share. For the full-year, JCP expects compstore sales to decrease 9% and earnings per share of $0.50 to $0.65.
The stock is trading at 40 times our 2009
EPS estimate of $0.66. We think that valuation is too
optimistic given the retailer's weak sales trends and
difficult consumer spending environment. Our target price
is $16, which is about 15x our fiscal 2010 EPS estimate. School Specialty (SCHS) By Rob Plaza May 18, 2009 On its fiscal third quarter report, School Specialty (SCHS) missed estimates and lowered its guidance for fiscal year 2009. That was the second quarter in a row that School Specialty missed estimates and lowered its fiscal 2009 guidance. The third quarter shortfall was due to a decline in state revenues. SCHS is highly dependent on state and local governments for its revenues. A weak economy and de-leveraging in the credit markets will only exacerbate the problems in local government funding.
We expect this trend to continue, and that will hurt School Specialty's results. We reiterate our Sell rating on SCHS. Our six-month target price is $13, or 10x our fiscal 2010 EPS estimate.
Liberty Media Interactive (LINTA) By Ann Northrop May 15, 2009 We maintain our under-performer rating on Liberty Interactive (LINTA). We now think the consumer-led economic slowdown will continue to stifle the company's earnings growth well into 2009, with little visibility to improvement other than easing comps. When the economy turns, we expect Liberty Interactive to accelerate EPS growth to a mid-teens rate and maintain it for several years, driven by QVC. Indeed, despite QVC s challenging retail environment, Liberty Interactive posted 2% revenue growth, albeit with declining margins. Also driving the growth is Liberty's e-commerce business, which currently is doubling its revenue and OIBDA year over year.
Neverthess, at 14.0x our 2010 EPS
estimates, we think the stock is richly valued,
presenting a poor risk/reward proposition in a climate of
murky earnings visibility with potential earnings
estimate cuts more likely than increases. Gerdau S.A. (GGB) By Claudio Freitas May 14, 2009 We are maintaining our Sell recommendation on Gerdau S.A. (GGB) based on poor first quarter results and a huge decrease in demand for steel worldwide. The huge decline in steel prices and the international economic slowdown creates a more challenging business environment for the steel industry. The company's strategy to grow through acquisitions based on debt is contributing to the negative news.
Moreover, huge exposure to the U.S. market during a recession is a major concern. Our target price is $5.75 per share.
Salix Pharmaceuticals (SLXP) By Jason Napodano May 13, 2009 Salix Pharmaceuticals (SLXP) is a specialty pharmaceutical company engaged in acquiring, developing and commercializing prescription drugs used in the treatment of a variety of gastrointestinal diseases. The company suffered a major setback in December 2007 when the FDA granted approval to three generic versions of lead product, Colazal. This is devastating news for Salix, as Colazal was a significant contributor to both the top-and bottom-line. Moreover, Salix failed to receive approval for its tablet version of Colazal in December 2008.
We expect the coming months to be challenging for the company. While new product launches and new indications for Xifaxan should support a recovery in revenues in 2009, we do not expect earnings to recover prior to 2010. We maintain a Sell rating with a target price of $6. Trimble Navigation (TRMB) By Ken Nagy May 12, 2009 Trimble Navigation (TRMB) is an OEM of GPS-based products and control systems. March quarter revenue was short of the consensus, although the EPS exceeded. Forward guidance is for a revenue decline of -1.4% to an increase of 9.0% in Q2. International markets will be the only growth drivers for E&C, as the negative impact of the recession on the domestic business is likely to continue. The company will also face negative seasonality in the second half.
However, both the TFS and TMS segment results are currently expected to improve. We are reiterating our Sell rating on TRMB shares.
Navigant Consulting, Inc. (NCI) By Sean P. Smith May 11, 2009 Shares of Navigant Consulting (NCI) are trading at 17.2x and 16.1x our 2009 and 2010 EPS estimates, respectively, and at a 9% premium to the 2009 peer group average. The company's 2008 acquisition of Chicago Partners has offset revenue and operating income declines in its existing business segments.
Until we see further evidence that NCI can improve
utilization rates and operating results in its largest
operating segments, we believe that a premium
valuation, relative to the peer group average, is
unwarranted. Our price target reflects of multiple of
13x our 2009 EPS estimate. BJ's Restaurants (BJRI) By Ann Northrop May 08, 2009 BJ's Restaurants, Inc. (BJRI) has grown rapidly with its unique concept and high-quality food offered at various price points, while maintaining some of the best unit economics in the industry. Despite the recession, the chain's current comps are outperforming its peer group. However, trading at a premium to its growth rate (28x 2010E), we believe BJRI shares are richly priced given the uncertainty in the economy and estimates. Longer-term, we think the company's 20%+ unit growth target could become unmanageable as the base expands, or difficult to fund.
Since 2002, BJ's ROE has averaged in the mid-single digits, with full-year results rising above 6% only once, when it reached 8% in 2005.
The Corporate Executive Board (EXBD) By Sean P. Smith May 07, 2009 We maintain our Sell rating on shares of The Corporate Executive Board (EXBD) following the release of Q1 results. While Q1 EPS beat expectations, we have lowered our full-year estimates. The company continues to experience deterioration in its cross-sell ratio, and other key operating metrics, including contract value. Given the current operating pressures, along with ongoing concerns regarding a slowing economy, we believe the shares should trade at a discount to the peer group average.
As such, we anticipate that the company's shares will continue to underperform the market in the near-term.
CenturyTel (CTL) By David Weissman May 06, 2009 We downgrade our rating to Sell for CenturyTel (CTL) based on valuation, after assessing the company's guidance for second quarter 2009 that was below our expectations. We also believe that the Embarq merger planned by CTL, scheduled to be completed in mid-2009, may be more challenging in terms of integration and deriving cost savings synergies. Meaningful merger-related synergies are not likely before 2011, in our opinion, offering limited opportunity for near-term operational improvement. While we expect growth in broadband Internet to remain robust, the near-term outlook dictated by management's financial guidance is weak as declines in traditional voice and network access business offset gains in broadband Internet.
We also remain concerned with a highly-leveraged balance sheet that is likely to be further burdened with the assumption of approximately $5.7 billion in Embarq debt upon deal closure.
Banco Bilbao Vizcaya Argentaria (BBV) By Ann Heffron May 05, 2009 We are continuing our Sell rating on Banco Bilbao Vizcaya Argentaria, S.A. (BBV), as well as our $9 target price. In its first quarter report, BBVA posted net earnings before nonrecurring items of EUR1.2 billion, down 14% from the EUR1.4 billion earned in the comparable 2008 period, and above our estimate as both revenues and expenses came in better than expected. Results reflected 20% growth in net interest income, due to higher volumes and improved margins. While noninterest expense rose 49% year over year, it fell 30% sequentially. Loan loss provisions jumped 65%, largely due to growing nonperforming loans that increased 67% year over year and 22% sequentially. We are increasing our 2009 EPADS estimate to $1.57 from $1.52, principally reflecting the first quarter overage.
We expect recent operating trends to continue near term. Our initial EPADS estimate for 2010 is $1.63. BBVA paid the fourth quarter dividend in stock and will be cutting its payout ratio to about 30% from roughly 50% in recent years.
LoopNet, Inc. (LOOP) By Sean P. Smith May 04, 2009 We reiterate our Sell rating on shares of LoopNet, Inc. (LOOP) following the release of Q1 results. Although the company owns the leading online commercial real estate marketplace, we believe that a challenging near-term operating environment will curtail share price appreciation.
Continuing macro-economic
challenges will likely put stress on the commercial
real estate sector, in our opinion, as slower economic
growth combined with tight access to debt capital
may limit transaction activity. Various key operating
metrics have weakened for four consecutive
quarters, and we believe that a lower multiple is
appropriate at this time. Post Properties (PPS) By Greg Sukenik May 01, 2009 Post Properties (PPS) has taken various cost-cutting steps to navigate through the national economic downturn, including layoffs and a freeze on new development starts. The company is also trying to sell more assets to increase liquidity. As expected, the company cut its quarterly dividend to $0.20 per share, down from $0.45 per share in 3Q08. The current dividend is down to more realistic levels. The company has taken care of all 2009 debt maturities. While we like the moves the company is making, we maintain our sell rating due to macroeconomic factors.
Operationally, we think PPS will under-perform its peer group in 2009. We expect SS revenue and NOI growth to turn negative this year. As job losses mount, multi-family operators will continue to see occupancy and rental rate declines. Post reports 1Q09 results on May 4th.
CEMEX S.A. (CX) By Claudio Freitas Apr 30, 2009 We are keeping our Sell rating on CEMEX, S.A. de C.V. (CX). The company posted weak results in the first quarter of 2009 with net income of just US$3 million. The continued weak cement volumes in Spain and U.S. are problematic. The short-term outlook for the company remains highly uncertain based on the downtrend in the residential, industrial/commercial, and the infrastructure sectors as well as due to the fall in the real estate prices throughout the world.
Moreover, the recent swine flu
in Mexico is also problematic. All efforts to reduce its
costs and net debt in 2009 are encouraging.
Nevertheless, the current credit crunch and the
recession in the U.S. are matters of huge concern. Celanese Corp. (CE) By Paul Raman Apr 29, 2009 Celanese Corp. (CE) is a global hybrid chemical company based in Dallas. The company produces chemical substances and materials. The company concentrates in four different business segments targeting the consumer and industrial products market. Weak market conditions drove a dramatic decline in overall global demand for many industries which affected Celanese operations. Recessionary trends, coupled with inventory destocking, resulted in sharp volume declines in the Advanced Engineered Materials and the Acetyl Intermediates businesses.
The company expects volumes to remain under pressure in 2009, even with the easing of inventory destocking. Thus, we rate the shares a Sell with a target of $10.00.
Eastman Chemical (EMN) By Paul Raman Apr 28, 2009 Eastman Chemical Company (EMN) is engaged in the manufacture and sale of chemicals, plastics and fibers. Based in Kingsport, Tennessee, the company has 12 manufacturing sites in the U.S., Europe and Asia-Pacific. Eastman is witnessing rising raw material prices and a declining demand for its products. The company reported a 98% drop in earnings in the first quarter of 2009 driven by lower prices and volumes. Sales were considerably down in all the major segments.
Lack of free cash flow, PET capacity increases coupled with slowing growth, and PET industry overcapacity force us to rate the stock a Sell with a target of $24.50.
Amgen, Inc. (AMGN) By Jason Napodano Apr 27, 2009 Results over the past few quarters demonstrate the challenging environment for Amgen, Inc. (AMGN) specifically with its key products, Aranesp and Enbrel. Management believes that the first quarter represents a trough with respect to product sales. We struggle to see what re-accelerates Amgen's top-line in the second half of the year. Management's revenue guidance of $14.4 to $14.8 billion looks high to us, and seems to include significant inventory stocking on key product and/or a big upfront licensing deal for denosumab. We are hesitant to model either.
Amgen should be able to meet its EPS target of between $4.55 and $4.75, but with the top-line most likely staying weak, we struggle to see how the stock moves higher. We are advising investors to exit the stock. Our target is $40.
JC Penney (JCP) By Rob Plaza Apr 24, 2009 We are downgrading JC Penney (JCP) shares from Hold to Sell. The stock is up about 90% off its March lows. We think the shares have moved too far, too fast, given that the retailer is still several quarters away from seeing a real rebound in its business. Moreover, management is pointing to signs of stabilization in its business, we note that JC Penney's sales and earnings will experience sever declines in 2009. We previously upgraded the stock on February 8, when it traded around $16. We felt that at that price the stock discounted much of the bad news.
However, with the stock trading around $27, we think the stock has substantial downside risk. Our target price is $16, which 20x our fiscal 2010 EPS estimate.
Johnson Controls, Inc. (JCI) By Paul Raman Apr 23, 2009 Johnson Controls (JCI) is suffering from a weakness in its North American business, high inventory levels at the OEMs, weakening product mix, and raw material/ price squeeze. Rapid deterioration in automotive production coupled with worsening residential market raise concern. As foreseen, Johnson reported losses in the second quarter of fiscal 2009. The company expects a return to profitability in the second half of fiscal 2009. These lead us to rate the stock a Sell with a target of $12.00.
Currently, Johnson Controls shares are trading at approximately 15.8x our 2010 estimate of $1.11. Our target price is 10.8x our 2010
EPS estimate. Regency Centers (REG) By Greg Sukenik Apr 22, 2009 Regency Centers (REG) reported 4Q08 FFO of $0.72 per share vs. $1.16 in 4Q07. The decrease was primarily due to impairment charges and deal write-offs which totaled $0.62 in the quarter. In addition, the company reported $0.28 per share of promote income. Operations are holding up relatively well at the company's centers, with stable occupancy, and same-store NOI and rental growth. However, retail-focused REITs will face a much more difficult operating environment in the coming quarters. Consumer spending patterns are weakening across the country and large chains are curtailing expansion plans.
We would be careful of the strip retail sector, although we still
rate REG a Buy. We expect REG to hold up better than many
retail competitors who are saddled with more debt. REG has a
diversified portfolio of retail centers in strong long-term
markets. The yield is over 13%, but a cut could be coming
over the next couple of quarters. Palm, Inc. (PALM) By Ian T. Gilson Apr 21, 2009 Palm, Inc. (PALM) 3Q09 revenue declined by 71.0% y-o-y due to pricing concessions and lower volume for its maturing legacy smartphone, weak consumer spending, and delay in shipments of the Treo Pro in the U.S. Though Palm expects to launch its Palm Pre next gen phone by June 2009, we have doubts on its success of given the current economic uncertainty that has dampened demand for consumer products. We continue to believe that Palm badly trails RIM and the iPhone in the smartphone market and will not be able to effectively compete as an independent company.
We have a low
confidence in its ability to survive with a weak market
share, so we reiterate our Sell rating on Palm shares
with our six-month price target of $5.00. Liberty Property Trust (LRY) By Greg Sukenik Apr 20, 2009 Office and industrial markets continue to weaken throughout the US, which is bad news for Liberty Property Trust (LRY). In the current environment, we do not favor suburban industrial/office companies as rental rates and occupancies continue their downward trend. The company recently cut its quarterly payout to $0.475 per share, 24% lower than the previous payout. Negative job growth trends will keep shares under pressure. Despite the economic downturn in the US, operations held up relatively well in 4Q08. In addition, the company has used to debt and equity to raise capital in a tight credit environment.
LRY now has plenty of liquidity to address near-term debt maturities. We maintain our near-term Sell rating based primarily on macroeconomic factors.
Logitech International (LOGI) By John Nelson Simon Apr 17, 2009 Logitech International, Inc. (LOGI) reported results for the third quarter of 2009 with weaker than expected revenues and earnings due to weakening demand, lower gross margin and higher effective taxes. The company currently assumes that this relatively weak macroeconomic environment will weaken further in the coming months. Its outlook anticipates that the economy will have an impact on the European consumer as well. It plans to reduce global salaried workforce by between 550 and 600 employees, and this is expected to generate annual cost savings beginning in 2010 of approximately $50 million.
We now estimate that revenue and EPS will reduce by 2.5% and 26.5% respectively in 2009 compared to 2008. We are maintaining a Sell on LOGI with a target price of $11.00.
Zions Bancorp (ZION) By Neena Mishra Apr 16, 2009 Zions Bancorporation (ZION) is scheduled to release its 1Q09 earnings results on April 20, 2009 with a conference call schedule later on the same day. ZION's 4Q08 operating loss came in at $0.32 per diluted share primarily driven by huge non-cash goodwill impairment, write-down of impaired securities and higher provision for loan losses. Ongoing weakness in the southwestern residential real estate markets, where the company has a significant exposure, continues to hurt the results. Though loan and deposit growth were satisfactory and NIM improved sequentially, credit quality continued to deteriorate.
Ahead of the 1Q09 results, we have lowered our EPS estimates, based on our concerns for further credit deterioration. We are maintaining our Sell recommendation on the shares of ZION.
MBIA, Inc. (MBI) By Eric Rothmann Apr 15, 2009 We remain concerned with MBIA Inc.'s (MBI) asset management business and its ability to write new insurance business, given the continued pressure from lower credit agency ratings. The company is still losing money on risky mortgage-backed securities that it insured at the height of the U.S. housing bubble. Despite MBI's efforts to separate the muni bond insurance business from structured finance business, there remains an air of uncertainty about the business prospects of the new company (National). Moreover, we expect continued whipsawing of the financial markets till 1H09.
Given the prolonged uncertainty for the group, we maintain a Sell rating. Our six-month price target is now $3.80 per share, reflecting a 0.10x to our adjusted book value estimate of $38.00 per share at September 30, 2009. We still think there is substantial digestion of residential real estate concerns.
Embarq (EQ) By David Weissman Apr 14, 2009 We maintain our Sell rating for Embarq (EQ), the fourth largest local telephone service provider in the U.S., as access line loss continues to erode traditional voice revenue, largely resulting in decreasing consolidated sales for full-year 2008. The company has received shareholder approval for its consolidation with CenturyTel under an $11.6 billion merger deal (expected to close in 2Q 2009). Lower revenue forecasts for the first-half of 2009, acceleration of access line loss, and weakening CTL valuation levels support our thesis. We believe that the local phone business in North America, in particular service offered by regional carriers, has significant challenges ahead as consumers and business customers migrate to alternative solutions including VoIP, wireless and cable offerings.
We also believe pricing pressure and the need to invest further in broadband infrastructure may strain balance sheet conditions.
Internap Network Srvcs (INAP) By Ian T. Gilson Apr 13, 2009 Being a small player in a competitive industry, Internap (INAP) has a relatively low revenue growth rate, which fell to 8.5% in 2008 over 2007 versus a growth of 29.1% in 2007 over 2006. Although the company has been gaining traction in its data colocation services, it is witnessing softness in its content delivery network (CDN) and Internet Protocol (IP) business. Much of this has been caused by the weakening economy, which resulted in higher churn rate, longer sales cycle and lower subscriber addition in Q408.
Though the company has been making important upgrades to its CDN product, there has been a lackluster performance in the segment for the last few quarters. INAP provided Q109 revenue and EBITDA guidance, which was in line with our previous estimates. Thus, we maintain our estimates for Q109. As such, we re-iterate our Sell rating.
Wilmington Trust (WL) By Neena Mishra Apr 09, 2009 Wilmington Trust Corp. (WL) is scheduled to release its 1Q09 earnings results on April 24, 2009 with a conference call schedule later on the same day. We remain concerned with WL's exposure to commercial real estate-construction loans (about 20% of the portfolio). Within the construction loan portfolio, 75% loans are for residential construction/land development.
Though WL lends mainly to smaller homebuilders in the Delaware Valley (60% of the portfolio) and not to national homebuilders, we expect a further deterioration in the credit quality on account of the ongoing weakness in sales.
ABB Ltd. (ABB) By John Nelson Simon Apr 08, 2009 ABB Ltd. (ABB) is a leader in power and automation technologies that enable utility and industry customers to improve performance while lowering environmental impact. The global economic growth -- coupled with the attendant demand for power and automation -- that stimulated investment in new and expanded plants over the last 12 to 24 months is expected to decline to some degree during 2009, which is cause of concern for ABB.
Even with ABB's impressive menu of offerings, we remain somewhat cautious with respect to the possibilities for the next year, as there are significant economic uncertainties -- both political and economic -- on the horizon. Consequently, we have decided to downgrade ABB to a SELL and have adjusted our target price to reflect the current market environment.
Hartford Financial (HIG) By Neena Mishra Apr 07, 2009 Hartford Financial Services (HIG) is scheduled to release its 1Q09 financial results on April 30, 2009. 4Q08 core loss of $0.72 per share was substantially worse than estimates. The company also reduced its quarterly dividend by 84.4% to $0.05 per share. HIG has suffered frequent rating downgrades from all key rating agencies in the past few weeks, based on expectations for lower operating earnings, high investment losses and reduced financial flexibility. We remain concerned about additional losses in its investment portfolio and the variable annuity business, which have already threatened the capital cushion.
Thus, we suspect that the company may need to raise additional capital in the near-to-medium term. Ahead of the 1Q09 results, we are maintaining our Sell recommendation on the shares.
Dell Inc. (DELL) By Ian T. Gilson Apr 06, 2009 The rapid decline in corporate profits, highly illiquid capital markets, and the recessionary outlook are likely to dampen corporate capital spending. This is likely to have a major impact on Dell's (DELL) server business. Adding to this is the continued decline in consumer spending as shown by the decrease in sales of PCs and cell phones over recent months. Dell posted lackluster Q409 results as demand for equipment remained weak although cost cutting initiatives have helped boost its bottom line. The company's marketing model of being the lowest priced supplier to the consumer in a declining market is likely to reduce margins over the coming quarters.
Given the uncertainty of the length of the current world wide recession, we believe Dell will continue to struggle posting inconsistent results in future quarters. We maintain our SELL rating with a six month target price of $7.00. Votorantim Celulose SA (VCP) By Claudio Freitas Apr 03, 2009 We are maintaining our Sell recommendation on Votorantim Celulose S.A. (VCP). The short-term outlook for pulp prices is quite uncertain as a result of the current credit crisis. Fourth quarter results were bad as expected, but the pulp and paper sales volume were in line with the company's guidance in spite of the production stoppage in the Jacarei and Conpacel units in November 2008.
The recent reduction in demand in Europe and North America, along with the U.S. financial crisis, resulted in a decrease in pulp list prices all over the world. The growth in net debt is a problem and the lack of transparency in the merger deal with ARA raises many doubts.
The St. Joe Company (JOE) By Greg Sukenik Apr 02, 2009 Operations are getting worse at The St. Joe Company (JOE). The company reported a net loss of $27.9 million or ($0.31) per share in 4Q08. 4Q earnings included impairments and write downs of $0.34 per share. While operations continue to deteriorate, the company is currently focused on maintaining liquidity and cutting expenses. In addition, JOE has repaid most of its long-term debt and the company has sufficient cash reserves to get through the residential real estate slump. Although, there are no signs that the housing situation will get better in the next six months, and the worst could be yet to come.
Near term, we would stay away from companies with exposure to the residential building business. While we think the company is a good long-term investment, we are maintaining our near-term Sell recommendation.
Red Robin Gourmet Burgers (RRGB) By Ann Northrop Apr 01, 2009 We believe shares of Red Robin Gourmet Burgers (RRGB) will continue to underperform both the larger market and the restaurant industry. Red Robin's traffic began declining long before the onset of rising gas prices in October 2007, which began choking business in the casual dining sector -- a victim of poor site selection in new markets. In spite of their poor performance, the company has retained and even added to these sites as it repurchased 45 franchises since 2005. Moreover, 2009 consensus EPS estimates are 10% higher than ours, and we think our estimate may prove aggressive if the economic slowdown is deeper or more protracted than we currently anticipate.
Barring a prolonged recession, which is a distinct possibility -- we think RRGB's traffic should stabilize in late 2009 as it laps weak comps and unit growth is rationalized industry-wide. Indeed, industry capacity is currently contracting as unit growth is slowed, underperforming units are closed and more independents close.
BJ Services (BJS) By Sheraz Mian Mar 31, 2009 Our continued Sell recommendation for BJ Services (BJS) shares reflects the weakening outlook for the North American pressure pumping market. Weak natural gas prices and continued credit market turmoil have prompted E&P players to curtail spending plans, significantly affecting the outlook for players such as BJ Services.
While the company should fare better than many of its smaller peers, given the size and scope of its operations and its strong financial health, it is nevertheless faced with pricing pressures and margin compression in the coming quarters.
Nabors Industries (NBR) By Sheraz Mian Mar 30, 2009 Barbados-based Nabors Industries Ltd. (NBR) conducts oil, gas, and geothermal land drilling operations and is the largest land-drilling contractor in the world. It is also one of the largest land well servicing companies and workover contractors in the U.S. We are reiterating our Sell recommendation for Nabors shares in view of the grim outlook for the North American land drilling scene. The rapidly declining rig count in response to a combination of commodity-price weakness and credit market tightness is expected to weigh on the fortunes of all oilfield service players.
Being the largest onshore driller, Nabors remains particularly exposed to this uncertain macro backdrop. This, coupled with the company's relatively weak balance sheet in an environment of continued credit market turmoil, accounts for our continued bearish view.
Cadence Design Systems (CDNS) By Ian T. Gilson Mar 27, 2009 We expect that a turnaround is going to take time for Cadence Design Systems (CDNS) due to mounting financial problems leading to lackluster growth. The company reported weak 2008 results and provided guidance for a poor 2009. We have lost confidence in the company's ability to survive in the market and show healthy fundamentals. Cadence has been losing share to Synopsys and is struggling through a downturn in the semiconductor cycle. Cadence also withdrew its bid for Mentor Graphics in 2008, further dimming its growth prospects.
Cadence recently came out with enhanced version of its products, but it will take time for these to generate additional revenue. We maintain a Sell rating on the shares and maintain our six-month price target of $2.50.
Ford Motor Company (F) By Paul Raman Mar 26, 2009 Ford Motor (F) is one of the largest automobile manufacturers in the world. We believe that the company should file for bankruptcy to rid itself of Unions, pension and healthcare issues, and separate dealerships from the rest of the company. The U.S. government should provide $25-$50 billion in aid, which will act as DIP ["debtor-in-possession"] financing. Any aid should force the company to only make 35MPG+ vehicles. Management should be purged and outsiders brought in. Tariffs and quotas should be implemented for imported vehicles from overseas. Consumers should be allowed to deduct their automotive interest.
Lastly, global alliances should be forged among producers in North America, Europe and Asia. From an equity holder's perspective, these compels us to rate the shares a Sell with a six-month target price of $0.00. Celanese Corp. (CE) By Paul Raman Mar 25, 2009 Celanese Corp. (CE) is a global hybrid chemical company based in Dallas. The company produces chemical substances and materials. Weak market conditions drove a dramatic decline in overall global demand for many industries which affected Celanese operations. Recessionary trends, coupled with inventory destocking, resulted in sharp volume declines in the Advanced Engineered Materials and the Acetyl Intermediates businesses.
The company expects volumes to remain under pressure in 2009, even with the easing of inventory destocking. Thus, we rate the shares a Sell with a target of $9.00.
Johnson Controls, Inc. (JCI) By Paul Raman Mar 24, 2009 Johnson Controls, Inc. (JCI) is suffering from weakening product mix and raw material/ price squeeze. It has recently withdrawn its financial guidance due to lower North American and European vehicle production. Rapid deterioration in automotive production coupled with worsening residential market raise concern. As foreseen, Johnson reported losses in the first quarter of fiscal 2009 and expects to incur similar losses in the second quarter of the year.
The company expects profits only after the third quarter of fiscal 2009. These lead us to rate the stock a Sell with a target of $7.00.
Palm Inc. (PALM) By Ian T. Gilson Mar 23, 2009 Palm Inc. (PALM) 3Q09 revenue declined by 71.0% y-o-y due to pricing concessions and lower volume for its maturing legacy smartphone, weak consumer spending, and delay in shipments of the Treo Pro in the U.S. Though Palm expects to launch its Palm Pre next gen phone in the first half of calendar year 2009, we doubt the success of it given the current economic uncertainty that has dampened demand for consumer products. We are again lowering our estimates for 2009 and 2010. We continue to believe that Palm badly trails RIM in the smartphone market and will not be able to effectively compete as an independent company.
We have a low confidence in its ability to survive with a weak market share, so we reiterate our Sell rating on Palm shares with our six-month price target of $5.00. Overseas Shipholding Group (OSG) By Ann Heffron Mar 20, 2009 We are maintaining our Sell recommendation on Overseas Shipholding Group, Inc. (OSG), and cutting our target price to $21. OSG reported fourth quarter diluted EPS before nonrecurring items of $2.54, well above consensus of $1.67 and our $1.23 estimate, primarily due to stronger than expected revenue growth from higher spot tanker rates and increased revenue days. Despite this, we are slashing our 2009 diluted EPS estimate to $2.10 from $3.75, as we now believe the impact of the global economic slowdown will be more pronounced than previously expected.
We have cut our 2009 revenue assumptions due to reduced estimates for spot market rates (roughly 45% of the company's fleet is exposed to the spot market) and fewer revenue days. While OSG recently increased its dividend by 40%, we cannot rule out a dividend cut in the event of a protracted economic downturn.
Satyam Computer Services (SAY) By Abdul Saleh Mar 19, 2009 With the arrest of both Satyam Computer Services Ltd.'s (SAY) ex-CEO and ex-CFO, the interim management announced that it'll make all attempts to clean up its books and appoint a new auditor. A new Board has been formed to spearhead the task of salvaging the company, and three members have already been appointed by the Government of India itself. A majority stake sale is currently being undertaken, and the Board of Directors announced that it will release the Request for Proposals (RFP) to all registered bidders. Previously, the Indian government announced that it would not step up to help Satyam with any financial assistance, citing the company's current receivables of approx. $350 million.
Given the recent developments, we had earlier downgraded SAY shares to a Sell and have suspended our estimates and target price.
Patriot Capital Funding (PCAP) By Neena Mishra Mar 18, 2009 Patriot Capital Funding, Inc.'s (PCAP) 4Q08 NOI results were a penny ahead of our estimates, based on better-than-expected fee income. However, net loss for the quarter came in at $0.81 per share primarily due to massive unrealized depreciation in investments. Though the overall credit quality remained stable, three of the portfolio companies were on non-accrual status. Further, the company has not been able to renew its revolving credit facility expiring in April as yet, and is currently in negotiations with its lenders. As a result, the auditors have expressed doubt about PCAP as a going concern.
The company has also postponed its dividend payment decision, and we do not expect any dividend declaration in FY09. Based on the uncertainty and concerns surrounding the credit facility, we are downgrading our recommendation on the shares to Sell from Hold.
Zimmer Holdings (ZMH) By Christopher Titus Mar 17, 2009 Zimmer Holdings, Inc. (ZMH) is a global leader in the design, development, manufacture and marketing of reconstructive implants, and trauma and related orthopedic surgical products. We believe the increase in unemployment will reduce the number of insured patients. As a result, procedures may be subject to delays, reducing revenue growth in the near-term.
On the upcoming call, we are listening for whether the stronger dollar will reverse the tailwind revenues have received over the past few years, if efforts to increase financial leverage during the recent credit crisis may have met obstacles, and if efforts to control prices of commodity inputs (futures) may pressure gross margins as prices have since retreated.
Foster Wheeler (FWLT) By John Nelson Simon Mar 16, 2009 Foster Wheeler (FWLT) is based in Zug, Switzerland, but its operational headquarters are in Clinton, New Jersey. The Company operates through two business groups: the Global Engineering and Construction Group -- or Global E&C Group -- and the Global Power Group. The global economic boom -- coupled with the attendant demand for oil, gas, petrochemicals and refined products -- that stimulated investment in new and expanded plants over the previous few years has finally come to a screeching halt. In addition, with the now-declining demand for power as well as the drop in the cost of oil and gas, the need for additional solid-fuel industrial boilers is also quite constrained.
Consequently, given that these major uncertainties have seriously intruded into global financial expectations, we have changed our opinion on FWLT to Sell. Our six-month target price is based on current market conditions, which recently have been known to move quickly and erratically.
General Motors Corp. (GM) By Paul Raman Mar 13, 2009 General Motors Corporation (GM) is one of the largest automobile manufacturers in the world. We believe that the company should file for bankruptcy to rid itself of Unions and pension & health care issues, besides separating dealerships from the rest of the company. Any government aid should force the company to only make 35MPG+ vehicles. Management should be purged and outsiders brought in. Tariffs and quotas should be implemented for imported vehicles from overseas. Consumers should be allowed to deduct their automotive interest.
Lastly, global alliances should be forged among producers in North America, Europe and Asia. From an equity holder's perspective, we rate the shares a Sell with a six-month target price of $0.00.
KeyCorp (KEY) By Neena Mishra Mar 12, 2009 KeyCorp's (KEY) 4Q08 loss from continuing operations came in at $1.13 per share, substantially worse than the estimates. Higher-than-expected losses resulted from goodwill impairment charge due to a reduction in fair value of net assets in its National Banking segment and a continuing rise in loan loss provisions. However, the Community Banking segment continued to experience organic growth aided by the U.S.B. acquisition. Credit quality deteriorated significantly during the quarter. Though the company strengthened its balance sheet with the injection of fresh capital and has taken steps to reduce its exposure to the Commercial Real Estate (CRE) home builders segment, we anticipate higher losses in the CRE portfolio in the coming quarters in view of its sizeable exposure to risky markets.
As such, we are maintaining our Sell rating on the shares of KEY. Our 6-month target price of $5.35 share assumes that KEY will trade at 15.3 times our FY10 earnings estimate. Combined with the reduced $0.25 per share annual dividend, this price target implies an expected 9.7% negative return over the period, which is consistent with our Sell rating.
Carmax Group (KMX) By Paul Raman Mar 11, 2009 CarMax (KMX) continues to face a difficult used-vehicle environment, largely due to aggressive incentives being offered by new vehicle manufacturers. Declining used-car value due to the ongoing weakness in the overall economy and higher funding cost at the CarMax Auto Finance are eroding the margins of the company. The current economic slowdown and reduced consumer spending had a negative impact on the company's retail business. It is aggressively cutting prices on trucks and SUVs to reduce inventory.
A drop in earnings and a higher valuation make us apprehensive about the stock s performance in the near term. Thus, we rate the stock a Sell and maintain our six-month target price of $7.50. Freddie Mac (FRE) By Neena Mishra Mar 10, 2009 Freddie Mac's (FRE) 3Q08 net loss came in at $19.44 per diluted share, compared to a loss of $2.07 per diluted share in the prior-year quarter. Though recently the Government laid out an expanded role for the GSEs in the housing market as part of its Homeowner Affordability and Stability Plan, we anticipate the price volatility to continue as the market looks for further information on the future structure of the GSEs and their role. Further, as the housing situation continues to worsen, we anticipate higher losses and write-offs. As a result, the conservatorship is expected to continue for a long time and this will yield no value to the common shareholders of the company.
Ahead of 4Q08 financial results, based on our concerns, we are maintaining our Sell recommendation on the shares of FRE. Ahead of the 4Q08 earnings release, given the continued weakness in the housing markets, we are increasing our loss estimate for FY08 to $39.50 per share and for FY09 to $13.12 per share. We are also installing our FY10 loss estimate at $9.81 per share.
MarkWest Energy Ptrs (MWE) By Sheraz Mian Mar 09, 2009 We are maintaining our Sell recommendation and target price for MarkWest Energy Partners (MWE) units following the fourth quarter results. We continue to believe that while the partnership's liquidity position has improved, the near to medium term outlook for its natural gas gathering and processing business remains weak.
We are projecting that the unfavorable macro backdrop, characterized by reduced access to credit and equity markets and weak commodity prices will adversely affect the partnership's distributable cash flows, forcing it to slash its distributions by 50% to the annualized rate of $1.28 per unit.
Trimeris, Inc. (TRMS) By Grant Zeng Mar 06, 2009 Trimeris, Inc. (TRMS) develops therapeutic agents for the treatment of viral diseases based on its fusion inhibition technology that blocks viral entry into host cells. Sales of its lead drug Fuzeon have been declining dramatically since 1Q08 due to fierce competition from Selzentry and Isentress. The collaboration amendment with Roche and several management changes further cast a shadow on the company's future.
We maintain our Sell rating on Trimeris with a $0.50 price target.
Syneron Medical (ELOS) By Christopher Titus Mar 05, 2009 Syneron Medical, Ltd. (ELOS) was founded in 2000 and is engaged in the design, development, and marketing of aesthetic medical products based on its proprietary electro-optical synergy (ELOS) technology. Its medical aesthetic devices are powered by proprietary software, and use combined-energy technology of bi-polar radio frequency (RF) and optical energy (laser or non-coherent light). ELOS competes in a very competitive market. With more than half of its sales derived from the United States, a weak economic outlook leads us to believe that sales growth will slow. As a result, we have reduced our revenue and EPS estimates.
Given the largely discretionary nature of the aesthetics laser business, the outlook could weaken further given current trends in the global economy. We are reducing out target price and recommending a Sell rating for this stock.
Palm Inc. (PALM) By Ian T. Gilson Mar 04, 2009 Although Palm Inc. (PALM) surprised us by posting better-than-expected results for 1Q 2009, the maturing lifecycle of Centro, the slow ramp of its Windows Mobile-based product sales, and product transition issues led to a disappointing 2Q 2009. Though Palm is currently working on several cost-saving initiatives and expects to launch its next-gen phone in the first half of calendar year 2009, we doubt on the success of it given the current economic uncertainty that has dampened demand for consumer products.
We continue to believe that Palm badly trails RIM in the smartphone market and will not be able to effectively compete as an independent company. We have a low confidence in its ability to survive with a weak market share, so we reiterate our Sell rating on Palm shares with a new six-month price target of $5.00.
SLM Corporation (SLM) By Neena Mishra Mar 03, 2009 The shares of SLM Corp. (SLM), also known as Sallie Mae, sold off sharply on February 26, on the news of the budget proposal by President Obama regarding the elimination of subsidies for student lenders. Further, SLM's 4Q08 core net operating income came in at $0.14 per diluted share, substantially short of our estimate. Higher funding costs were the primary reason for the lower-than-expected results. However, the performance of the private credit portfolio was better than expected. We expect funding costs to come down slightly once the federally sponsored programs (TALF and Conduit Facility) become operational. But the proposal for the elimination of private lenders from the student-loan market is a significant threat to the company. As such, we maintain our Sell recommendation on shares of SLM.
We maintain our SELL rating with a lower six-month target price of $7.00.
Dell, Inc. (DELL) By Ian T. Gilson Mar 02, 2009 The rapid decline in corporate profits, highly illiquid capital markets, and the recessionary outlook are likely to dampen corporate capital spending for Dell, Inc. (DELL). This is likely to have a major impact on Dell's server business. Adding to this is the continued decline in consumer spending as shown by the decrease in sales of PCs and cell phones over recent months. Dell posted lackluster Q409 results as demand for equipment remained weak, although cost-cutting initiatives have helped boost its bottom line. The company's marketing model of being the lowest priced supplier to the consumer in a declining market is likely to reduce margins over the coming quarters. Given the uncertainty of the length of the current world-wide recession, we believe Dell will continue to struggle posting inconsistent results in future quarters.
We maintain our SELL rating with a lower six-month target price of $7.00.
California Pizza Kitchen (CPKI) By Ann Northrop Feb 27, 2009 We expect California Pizza Kitchen, Inc. (CPKI) to continue to suffer declining traffic, de-leverage of its rent expense, and face shrinking ROEs well into 2H09. However, we expect CPKI to rebuild momentum in 2010 (primarily through unit growth), grow earnings at a mid-teens average rate over the next five years by adding full service restaurants in existing and new markets (at a rate of about 8%-10% annually), increase comps (we estimate +3% beginning in 2010) and restaurant margins through its new prototype restaurant design, repurchase shares, and build its lucrative Kraft frozen pizza licensing business.
Nevertheless, we expect earnings to deteriorate for at least two quarters with renewed growth dependent on the economy, to which there is no visibility.
First Advantage Corp. (FADV) By Sean P. Smith Feb 26, 2009 We maintain our Sell rating on shares of First Advantage Corporation (FADV) following the release of Q4 results. Although the company posted revenue gains in its Data Services business, we do not believe that the current level of revenue generation within the segment will be sustainable in the long-term. Additionally, revenues, operating income and margins all continued to deteriorate for the company as a whole during the quarter. We believe that, given the present earnings growth outlook and the current level of economic uncertainty, the current valuation is unwarranted.
Our $9.50 six-month target price for FADV is based on a P/E multiple of 11.5x estimated 2009 EPS.
Navigant Consulting (NCI) By Sean P. Smith Feb 25, 2009 Shares of Navigant Consulting (NCI) are trading at 14.8x and 13.8x our 2009 and 2010 EPS estimates, respectively -- an 18% premium to the 2009 peer group average. The company's 2008 acquisition of Chicago Partners has offset revenue and operating income declines in its existing business segments. Until we see further evidence that NCI can improve utilization rates and operating results in its largest operating segments, we believe that a premium valuation, relative to the peer group average, is unwarranted.
Our price target reflects of multiple of 12.5x our 2009 EPS estimate.
TRW Automotive (TRW) By Paul Raman Feb 24, 2009 TRW Automotive Holdings (TRW) is affected by constant production cuts by OEMs, pricing pressure and lower production volumes in North America. The shift in consumer preferences from pickup trucks and SUVs to smaller and more fuel-efficient cars in North America and from large and mid-sized passenger cars to small cars in Europe is manifesting a greater-than-expected impact. Lower vehicle production levels and increased commodity costs negatively affected the company in 2008. As a curative measure, TRW is realigning capacities and reducing fixed costs. However, these increased restructuring and asset impairment expenses in 2008.
In 2009, the company expects revenues and profits to continue to decline. Auto production is expected to fall in the key markets. Apart from this, TRW's higher debts also raise concern. Thus, we rate the stock a Sell with a target price of $2.00.
Waddell & Reed Financial (WDR) By Neena Mishra Feb 23, 2009 Waddell & Reed Financial Inc.'s (WDR) 4Q08 adjusted net income came in at $0.21 per diluted share, 7 pennies below our estimates and consensus. The downside was attributable to weaker sales volume across all revenue channels resulting from sharp decline in assets under management (AUM), heightened by increased redemptions. AUM declined 20.6% sequentially with 41.8% decline in overall sales (net of commissions). We anticipate the decline in AUM to continue to hurt the top line for the next few months, in view of the continued downturn in the global markets.
After reviewing the results, we have reduced our FY09 estimate to $0.96 per share and installed FY10 estimate at $1.17 per share. We maintain a Sell recommendation on the shares with a 6-month target price of $13.50 per share.
Motorola Inc. (MOT) By David Weissman Feb 20, 2009 We downgrade our rating to Sell for Motorola Inc. (MOT), a leading manufacturer of mobile handsets, network infrastructure and cable products. This follows our assessment of overall economic conditions and further analysis of the mobile handset business following the company's disappointing financial results for full-year 2008. Motorola's handset division continues to lose market share as it contends with soaring operating losses. Cell phone sales in the last reported quarter registered a drop of 53% year-over-year. Additionally, the company suspended future dividend payment to shareholders.
We are not convinced that valuation levels will improve over the next three to six months without a major restructuring initiative as the company faces economic headwinds, lower overall worldwide demand for its handsets, a lack of high-end competitive PDA wireless devices, and reduced visibility for near-term revenue improvement.
Georgia Gulf Corp. (GGC) By Paul Raman Feb 19, 2009 Georgia Gulf Corporation (GGC) is a leading North American manufacturer and marketer of two integrated chemical product lines, chlorovinyls and aromatics. The company also manufactures vinyl-based building and home improvement products. Georgia Gulf overpaid for the acquisition of Royal Plastics, a supplier of housing products. The acquisition was entirely financed with debt, and the company is in danger of violating debt covenants. The remaining product lines of the company are suffering from overcapacity.
GGC is expected to report losses in the near term on the back of rising feedstock and energy costs. Demand for the company's products is also expected to remain weak due to the downturn in the US housing and auto markets.
Telmex (TMX) By Claudio Freitas Feb 18, 2009 We are reiterating our Sell recommendation on Telmex (TMX). The competition in the Mexican market has been increasing, mainly from wireless companies and VoIP providers. Telmex continues to experience endless price erosion. Fourth quarter 2008 results were weak and the current economic situation is not encouraging at all.
The global credit crunch and the recession in the U.S. are a source of great concern, since Mexico and the U.S. have strong economic ties. Lastly, Telmex's valuation seems excessive if compared to other Latin American operators.
Marriott International (MAR) By Sean P. Smith Feb 17, 2009 Marriott International Inc. (MAR) is a leading worldwide hospitality company with a primary focus on property management and franchising. We maintain our Sell rating on shares of Marriott, following the release of 4th quarter results. The operating environment in the lodging sector is expected to remain weak throughout 2009 with substantial RevPAR declines forecasted. Additionally, the company's timeshare segment is struggling, with sales down and credit market turmoil preventing the company from completing note sales.
Given our forecast for negative earnings growth in 2009, along with the ongoing uncertainty regarding the state of the economy and its potential impact on Marriott's lodging and timeshare businesses, we rate the shares a Sell at this time.
LoopNet, Inc. (LOOP) By Sean P. Smith Feb 13, 2009 We reiterate our Sell rating on shares of LoopNet, Inc. (LOOP) following the release of Q4 results. Although the company owns the leading online commercial real estate marketplace, we believe that a challenging near-term operating environment will curtail share price appreciation. Continuing macro-economic challenges will likely put stress on the commercial real estate sector, in our opinion, as slower economic growth combined with tight access to debt capital may limit transaction activity.
Various key operating metrics have weakened in recent quarters, and we believe that a lower multiple is appropriate at this time.
Marlin Business Services (MRLN) By Neena Mishra Feb 12, 2009 Marlin Business Services (MRLN) is expected to release its 4Q08 results between February 13 and 23, 2009. Its 3Q08 results were a net loss of $0.08 per share, substantially below the consensus as well as our estimates. Credit quality deteriorated further during the quarter, with net charge-offs rising to 3.85% and the new originations declined 23.3% year-over-year. We suspect the weakening economy will continue to impact the new originations, and the delinquencies will continue to rise at least through 1H09. MRLN recently filed to convert to a state chartered commercial bank, which will lower the cost of funding, however we do not expect any significant impact on the earnings in the current year.
Ahead of 4Q08 results, we are maintaining our Sell recommendation on the shares with a six-month target price of $3.60 per share.
Banco Santander (STD) By Ann Heffron Feb 11, 2009 We are continuing our Sell rating on Banco Santander Central Hispano, S.A. (STD), as well as our $7 target price. Santander reported 2008 full-year net earnings of 8.9 billion, up 11% year over year but below our estimate, as loan impairment charges were higher than anticipated. The rise in nonperforming loans was an especially sour note in an otherwise satisfactory performance, relative to European peers. The company has been on a tear on the acquisition front, with most recent purchases including the UK's Alliance & Leicester, the retail operations of Bradford & Bingley plc in the UK, and the remaining 76% of Sovereign Bancorp that it did not own in the US. On November 28, 2008, Santander completed the sale of 1.599 billion new shares through a rights offering at a price of 4.50 per share for a total capital increase of 7.2 billion.
We are reducing our 2009 EPADS estimates $1.36 from $1.79, due to expectations for higher losses and lower revenues from the global economic slowdown and depreciation of the against the US$. Santander has a particularly large exposure to the property market, both in Spain and the UK, where it is now the second largest bank as measured by share of the mortgage market. The 2008 full-year dividend was maintained at 0.65 (US$0.84) per share.
Alkermes (ALKS) By Grant Zeng Feb 10, 2009 We downgrade Alkermes (ALKS) shares from Hold to Sell based on the financial performance in fiscal 3rd quarter of 2009 ended December 31, 2008 and the bleak outlook of the company in the next few quarters. Our price target is $8.00. Alkermes reported fiscal 3Q09 results on Feb 5, 2009 that were less than our expectations. We expect revenue in the 4Q09 will continue to decline by 44% to $34.7 million. Total revenue for the fiscal 2009 should decline by 18% to $197 million excluding the $120.7 million one-time revenue from Cephalon. Revenue will grow slowly during the fiscal 2010 to 2013 periods.
The company faces tough challenges in the coming quarters following a series of negative business developments, and the outlook is not rosy.
CEMEX S.A. de C.V. (CX) By Claudio Freitas Feb 09, 2009 We are keeping our Sell rating on CEMEX, S.A. de C.V. (CX). The company posted weak results in the fourth quarter of 2008 including a net loss of US$707 million. The continued weak cement volumes in Spain and U.S. are problematic. The short-term outlook for the company remains highly uncertain based on the downtrend in the residential, industrial/commercial, and the infrastructure sectors as well as due to the fall in the real estate prices throughout the world.
However, all efforts to reduce its costs and net debt in 2009 are very encouraging. Nevertheless, the current credit crunch and the recession in the U.S. are matters of huge concern.
The Corporate Executive Board (EXBD) By Sean P. Smith Feb 06, 2009 We maintain our Sell rating on shares of The Corporate Executive Board (EXBD) following the release of disappointing Q4 results. The company continues to experience deterioration in its cross-sell ratio, and other key operating metrics, including contract value, average subscription price, total member subscriptions, and client renewal rate, all fell in the fourth quarter of 2008. Given the current operating pressures, along with ongoing concerns regarding a slowing economy, we believe the shares should trade at a discount to the peer group average.
As such, we anticipate that the company's shares will continue to underperform the market in the near-term.
School Specialty (SCHS) By Rob Plaza Feb 05, 2009 School Specialty, Inc. (SCHS) is a company serving the pre-K-12 education market by providing products, services, and ideas which enhance student achievement and development to educators and schools across the U.S. School Specialty's family of brands serves more than 116,000 schools throughout the U.S. and Canada, with a comprehensive range of more than 100,000 products. Back on November 20, School Specialty reported disappointing results for its fiscal second quarter, and management lowered its guidance for the fiscal year 2009. The shortfall was due to a decline in state revenue. SCHS is highly dependent on state and local governments for its revenues. A weak economy and de-leveraging in the credit markets will only exacerbate the problems in local government funding.
We expect this trend to continue, and that will hurt School Specialty's results. We reiterate our Sell rating on SCHS and $11 target price. School Specialty is scheduled to report fiscal third quarter results on February 19.
Dell, Inc. (DELL) By Ian T. Gilson Feb 04, 2009 The rapid decline in corporate profits, highly illiquid capital markets, and the recessionary outlook are likely to dampen corporate capital spending. This is likely to have a major impact on Dell Inc.'s (DELL) server business. Added to this is the continued decline in consumer spending as shown by the decrease in sales of PCs and cell phones over recent months. Although Dell has announced plans to cut costs, its marketing model of being the lowest priced supplier to the consumer in a declining market is likely to reduce margins over the coming quarters.
Given the uncertainty of the length of the current world wide recession, we have a low confidence factor on our earnings forecasts over the next two years. Consequently, we maintain our SELL rating with a target price of $8.00 a share.
Overstock.com (OSTK) By Rob Plaza Feb 03, 2009 Overstock.com (OSTK) managed to turn a profit for the fourth quarter, but we were less than impressed. The company received a one-time gain of $1.8 million to its gross profit that enabled the company to report a $0.04 per share profit instead of a loss of $0.04 per share. In addition, the company's sales declined 13% year-over-year. This decline was due in large part to management cutting its marketing spend by 40%. The company plans to keep those marketing costs steady, and that will produce flat to down sales for the company in 2009.
Meanwhile, Overstock.com will be ramping up its technology and general and admin expenses. In our view, this will result in a revenue decline of 2% and a larger of net loss of $0.74 per share. We reiterate our Sell rating and lower our target price from $7 to $5.
Sony Corp. (SNE) By Ian T. Gilson Feb 02, 2009 Sony Corporation (SNE) is one of the world's leading players in both the electronics and entertainment industries. Established in 1946 in Tokyo, Japan, the company manufactures and globally markets a diversified range of products from video and audio equipment to computer games, CDs and movies. We believe Sony will continue to struggle as it faces competition from other innovative digital products and from low-cost Asian manufacturers as the consumer market slows. Sony posted lackluster Q3 results, hurt by sluggish sales in its core electronics segment due to the ongoing recession.
A strong yen, weak consumer demand, sliding consumer spending and an intensifying price competition are eating into its profits. Sony Corp. trimmed its forecast for 2008 and expects to record its first net loss in 14 years with much lower operating income. We therefore maintain a Sell recommendation on Sony shares and cut our six-month price target to $16.50.
Canon, Inc. (CAJ) By Ian T. Gilson Jan 30, 2009 Based in Japan, Canon, Inc. (CAJ) is one of the leading designers, manufacturers, and marketers of office equipment, cameras, and optical products in the world. Canon is a high-technology-oriented company with strategies to develop innovative, value-added products that incorporate advanced technologies. We believe the sharp appreciation of the yen is eroding Canon's revenue and profits. Canon's results for fiscal 2008 were hurt by weak consumer spending and falling demand amid a global economic slowdown. The company's Q4 of 2008 results were disappointing and CAJ cut its forecast for the full year 2009.
We believe the company will struggle to meet expectations with its Q1 being extremely tough with a probable increase in losses. We therefore downgrade CAJ shares to Sell with a six-month target price of $25.00.
Trimeris, Inc. (TRMS) By Grant Zeng Jan 29, 2009 Trimeris, Inc. (TRMS) develops therapeutic agents for the treatment of viral diseases based on its fusion inhibition technology that blocks viral entry into host cells. Sales of its lead drug Fuzeon has been declining dramatically since 1Q08 due to fierce competition from Selzentry and Isentress. The collaboration amendment with Roche and several management changes further cast a shadow on the company's future. We maintain our Sell rating on Trimeris with a $0.50 price target.
At this point, it's very difficult to value the stock. We believe qualitative factors prevail currently. There are many uncertainties about Trimeris due to the management change and collaboration amendment with Roche. The company is profitable but will find it tough to stay so if Fuzeon sales continue their downward slide.
Tractor Supply Co. (TSCO) By Rob Plaza Jan 28, 2009 On January 22, Tractor Supply Co. (TSCO) pre-announced fourth quarter results. The company indicated that it will report sales of $800 million on EPS of $0.65-$0.67. Sales were in-line, but its EPS guidance was well below our previous estimate of $0.77. The downside was due to Tractor Supply incorrectly accounting for its LIFO provision, which negatively affected the company's cost of goods sold and gross margin. Tractor Supply also restated its financials for the first three quarters of 2008, which reduced its EPS by a total of $0.20. We maintain our Sell rating on TSCO shares.
We continue to believe that the company will have a difficult time in 2009, as consumers cut back on spending. We believe the stock has downside risk to $25, or 10x our 2009 EPS estimate.
Newfield Exploration Co. (NFX) By Sheraz Mian Jan 27, 2009 Newfield Exploration (NFX), based in Houston, Texas, is an independent energy company engaged in the exploration and production (E&P) of crude oil and natural gas. In an asset-diversification strategy, management has turned what was once an exclusive concentration in the Gulf of Mexico into a balanced portfolio. We are downgrading Newfield shares to Sell from Buy to reflect the company's weak competitive position in the current unfavorable macro backdrop. We believe that the Newfield asset portfolio centered around the Rockies and Gulf Coast regions are lacking in a meaningful exposure to the emerging shale plays.
Thus, it is not suited for the current environment of low commodity prices and restricted access to capital. We have also reduced our estimates to reflect a lower commodity price deck.
Logitech International (LOGI) By John Nelson Simon Jan 26, 2009 Logitech International S.A. (LOGI) is a leading manufacturer and marketer of interface products for personal computers (PCs) and other digital platforms. The company's products include: Internet video cameras, mice and trackballs, keyboards, audio and telephony products, interactive gaming devices, and 3D controllers. LOGI reported results for the third quarter of 2009 with weaker-than-expected revenues and earnings due to weakening demand, lower gross margin and higher effective taxes. The company currently assumes that this relatively weak macroeconomic environment will weaken further in the coming months. Its outlook anticipates that the economy will have an impact on the European consumer as well. It plans to reduce global salaried workforce by between 550 and 600 employees and this is expected to generate annual cost savings beginning in 2010 of approximately $50 million. We now estimate that revenue and EPS will reduce by 2.5% and 26.5% respectively in 2009 compared to 2008.
We have downgraded LOGI to a Sell with a target price of $10.00.
Hubbell Inc. (HUB.B) By Ken Nagy Jan 23, 2009 Hubbell (HUB.B) reported third quarter 2008 results that exceeded both top and bottom line expectations. The good storm season was the primary driver of growth in the last quarter, although pricing actions and acquisitions also contributed. The company is benefiting from restructuring actions, with management continuing to attribute some of the margin expansion to production efficiencies and improved cost management. The share price dropped sharply in September, but has stabilized since. We tend to think that there could be further downside, given the recessionary macro economic trends and the positive correlation between Hubbell's growth and the growth of the national GDP.
Additionally, both residential and nonresidential construction activity appears to be slowing and could worsen in 2009. Consequently, we are reiterating our Sell recommendation. Halliburton Company (HAL) By Sheraz Mian Jan 22, 2009 We are downgrading Halliburton Company (HAL) shares to Sell from Buy to reflect our growing concerns about the weakening outlook for the domestic natural gas market, where the company enjoys a strong leverage through its premier position in the pressure pumping business. Demand for pressure pumping closely tracks the overall rig count, which in turn reflects spending plans by E&P players. Pressure pumping is an umbrella term used to describe a number of vital services performed on new and existing (producing) wells.
While the current U.S. rig count is already down roughly 24% from its all-time peak in August 2008, we see significant room for further declines in the coming months before the market stabilizes. This expected drop in activity levels will weigh on the outlook for pressure pumping even after the resumption of normal activity levels towards the end of 2009, in our view.
BJ Services (BJS) By Sheraz Mian Jan 21, 2009 Houston-based BJ Services Company (BJS) provides pressure pumping and other oilfield services to oil and gas exploration and production companies all over the world. Pressure pumping comprises cementing and stimulation services used during the completion of new wells along with the restoration and repair of existing wells. The company also provides tubular services, inspections of pipe connections, and specialty chemical treatments. We are downgrading BJ Services shares to Sell from Hold to reflect our growing concerns about the weakening outlook for the North American pressure-pumping market. Weak natural gas prices and continued credit market turmoil have prompted E&P [Exploration and Production] players to curtail spending plans, significantly affecting the outlook for players such as BJ Services.
While the company should fare better than many of its smaller peers, given the size and scope of its operations and its strong financial health, it is nevertheless faced with pricing pressures and margin compression in the coming quarters.
Regis Corporation (RGS) By Sean P. Smith Jan 20, 2009 We are downgrading our rating on shares of Regis Corporation (RGS) from Hold to Sell. Given the current challenging operating environment, the recent weakness in same-store sales, and the concerns regarding the company's ability to stay in compliance with its financial debt covenants, we believe that a multiple at the low end of the company's average historic range is warranted at this time. Second-quarter same-store-sales fell well short of management's expectations, and we anticipate further declines in 2009. Our price target of $9.00 equates to a multiple of roughly 7x our 2009 EPS estimate.
Although Regis is the clear leader in its industry, and is well positioned to benefit given an improvement in the economic environment, we currently expect that the company's operations will likely deteriorate further before eventually recovering.
Satyam (SAY) By Abdul Saleh Jan 19, 2009 The Satyam (SAY) saga appears to be coming full circle, now with the arrest of both the ex-CEO and ex-CFO, and the interim management's announcement that it ll make all attempts to clean up its books and appoint a new auditor. A new Board is being formed to spearhead the task of salvaging the company and three members have already been appointed by the Government of India itself. The Board will face a difficult task indeed, given that the company is cash-strapped, under investigation and the subject of criticism from all possible angles. The option of a merger/takeover is on the table, although it is abundantly clear that there are no suitors at the current time. The only other option may be a government-sponsored Indian-style bailout, specifically in terms of providing short-term working capital, although there is no precedence in the Indian financial history of a bailout of this magnitude. Given the recent developments, we are downgrading SAY shares to a Sell and have suspended our estimates at the current time. Wilmington Trust (WL) By Neena Mishra Jan 16, 2009 Wilmington Trust Corp. (WL) is scheduled to release its 4Q08 and FY08 earnings results on January 30, 2009, with a conference call schedule later on the same day. The company recently announced that it expects to record a much larger than earlier expected provision for loan losses, and will likely record a charge (yet undetermined) related to other-than-temporary impairment (OTTI) of its trust-preferred securities portfolio. Following the announcement, S&P lowered its long-term counterparty credit rating on WL. Ahead of the 4Q08 results and based on the expected increase in the loan losses in the coming quarters, particularly in view of WL's large exposure to real estate construction loans, we are reducing our FY08 and FY09 EPS estimates.
We are also lowering our six-month price target, as well as downgrading our recommendation on the shares of WL to a Sell.
Telmex ADR (TMX) By Claudio Freitas Jan 15, 2009 We are reiterating our Sell recommendation on Telmex ADR (TMX). Third quarter 2008 results were disappointing. Net income was down 28% as revenue fell amid stiff competition. Mexican domestic growth has stalled creating a fiercely competitive environment, and the company is experiencing price erosion. The global credit crunch and the recession in the U.S. are also sources of great concern, since Mexico and the U.S. have strong economic ties.
Lastly, Telmex's valuation seems excessive if compared to other Latin American operators.
Overseas Shipholding Group (OSG) By Ann Heffron Jan 14, 2009 We are lowering our recommendation on Overseas Shipholding Group, Inc. (OSG) to Sell from Hold as we believe the impact of the global economic slowdown will be more pronounced than previously expected. Consequently, we have cut our 2009 revenue assumptions due to reduced estimates for spot market rates (roughly 45% of the company's fleet is exposed to the spot market) and fewer revenue days. At the same time, we have decreased our 2009 diluted EPS estimate to $3.75 from $7.15. Our 2008 estimate remains $12.90. OSG reported third quarter diluted EPS of $4.84, well above consensus of $3.60 and our $3.10 estimate, primarily due to stronger than expected revenue growth from higher spot tanker rates and increased revenue days.
While OSG recently increased its dividend by 40%, we cannot rule out a dividend cut in the event of a protracted economic downturn.
MarkWest Energy, Inc. (MWE) By Sheraz Mian Jan 13, 2009 We are downgrading MarkWest Energy (MWE), a predominantly natural gas gathering and processing MLP, from Hold to Sell. We believe that it will be difficult for MarkWest to sustain current distribution levels in the face of weak commodity prices and reduced access to credit. An unfavorable macro backdrop, characterized by reduced access to credit and equity markets and weak commodity-prices is expected to weigh on the partnership's distributable cash flows, forcing it to cut distributions to conserve capital.
We are projecting that MarkWest Energy will slash its distributions by 50% to the annualized rate of $1.27 per unit. Our new price target is $7.00 per share.
Comerica Inc. (CMA) By Neena Mishra Jan 12, 2009 Comerica (CMA) is a Detroit-based banking and financial services company. With nearly 10,350 employees and 400+ banking offices, CMA is one of the top 20 banks in the country. CMA is scheduled to release its 4Q08 financial results on January 22, 2009. Excluding the one-time items, 3Q08 operating earnings came in at $0.52 per diluted share, two pennies short of our estimate. Credit metrics worsened further during the reported quarter. Though the capital infusion by the Treasury will support the balance sheet, higher loan losses in the coming quarters will continue to impact the results.
Ahead of 4Q08 financial results, we are moderating our FY08 and FY09 estimates. We maintain our Sell recommendation on the shares with a six-month price target of $17.00 per share.
Priceline.com (PCLN) By Rob Plaza Jan 09, 2009 We are downgrading Priceline.com (PCLN) from Hold to Sell. In our opinion, the stock's recent move from the high $40s to about $80 (a rally of ~65%) should be sold. Recall that the company indicated that it began experiencing an accelerated deterioration in European travel in the third quarter. Global economic conditions have not improved since that time, and Zacks Investment Research believes the global slowdown will accelerate in 2009.
As a result, the headwinds impacting the online travel-related services market will persist, and that will pressure Priceline.com's results. We think the stock should trade around $60, which is a more reasonable multiple of 16x our 2009 EPS estimate and 10x our 2009 pro forma EPS estimate.
Salix Pharmaceuticals (SLXP) By Jason Napodano Jan 08, 2009 Salix Pharmaceuticals (SLXP) is a specialty pharmaceutical company engaged in acquiring, developing and commercializing prescription drugs used in the treatment of a variety of gastrointestinal diseases. The company suffered a major setback in December 2007 when the FDA granted approval to three generic versions of its lead product, Colazal. This is devastating news for Salix, as Colazal was a significant contributor to both the top-and bottom-line. Moreover, Salix failed to receive approval for its tablet version of Colazal in December 2008.
We expect the coming quarters to be challenging for the company. While new product launches and new indications for Xifaxan should support a recovery in revenues in 2009, we do not expect earnings to recover prior to 2010. We maintain a Sell rating with a target price of $5.
Votorantim Celulose (VCP) By Claudio Freitas Jan 07, 2009 We are maintaining our Sell recommendation on Votorantim Celulose S.A. (VCP). The short-term outlook for pulp prices is quite uncertain as a result of the current credit crisis. Third quarter results were disappointing and the pulp cash production cost increased during the quarter due to the stoppage of production in the Jacarei and Conpacel units. Fourth quarter guidance is also disappointing. The recent reduction in demand in Europe and North America, along with the U.S. financial crisis, resulted in a decrease in pulp list prices all over the world.
Moreover, after the loss announced by Aracruz, the merger no longer seems to be a good idea.
St. Joe Company (JOE) By Greg Sukenik Jan 06, 2009 St. Joe Co. (JOE) is currently focusing on increasing liquidity through the sale of non-core assets, reducing headcounts, and reducing cap-ex expenditures in response to a rapidly deteriorating residential Florida real estate market. In addition, JOE has eliminated most of its long-term debt and opened a new $100 million line of credit. There are no signs that the housing situation will get better in the next six months and we think the worst is yet to come. Near term, we would stay away from companies with exposure to the residential building business. While we think the company is a good long-term investment due to its extensive land holdings in one of the fastest growing states, we are maintaining our near-term Sell recommendation.
The company is trading at 165x our 2009 EPS estimates.
LeapFrog Enterprises (LF) By Steven Ralston Jan 05, 2009 Headquartered in California, LeapFrog Enterprises (LF) is a leading provider of technology-based learning products and proprietary content. The company designs and develops educational products, as well as related interactive software and content, under multiple product platforms, including the LeapFrog, LeapPad, Leapster, and Quantum Leap brands. Management's actions to improve long-term operating results through increased R&D and incremental marketing spending resulted in another year of negative earnings in 2007. Management expects that 2008 will be a turnaround year with new products introduced in the last two years generating sales and earnings growth.
However, turnarounds usually take longer than initial expectations. In addition, the economic weakness in the U.S. is negatively impacting spending on discretionary products and is currently a headwind for the company's progress. Therefore, the stock is rated a Sell.
American Axle (AXL) By Paul Raman Dec 31, 2008 American Axle & Manufacturing Holdings, Inc. (AXL) is a leading supplier of driveline systems, modules and components for the light vehicle market. The company makes axles, driveshafts and chassis components for light trucks, sports utility vehicles (SUVs) and passenger cars. The present condition of the North American automotive industry characterized by slow car sales, production cuts, excessive inventories, rising commodity costs, and market share losses of leading U.S. automakers are affecting the company negatively. Despite the company's attempts to diversify its customer base, General Motors (GM) still accounts for about 70% of current sales and is constantly implementing production cuts. To make matters worse for AXL, it is exposed to platforms that have faced the maximum cuts. AXL's largest vehicle programs at General Motors and Chrysler account for nearly 90% of the company's total revenues.
Meanwhile, AXL has been adversely impacted by rising commodity costs. This is negatively affecting earnings by $0-$15 million annually. In fact, General Motors and other OEM customers are constantly demanding concessions from suppliers in the form of lower prices. Reddy Ice Holdings, Inc. (FRZ) By Steven Ralston Dec 30, 2008 Headquartered in Dallas, TX, Reddy Ice Holdings, Inc. (FRZ) is the largest manufacturer and distributor of packaged ice in the United States. The company sells its products primarily under the Reddy Ice brand to approximately 82,000 consumer locations in 31 states and the District of Columbia. Management is attempting to grow the top line through an aggressive acquisition strategy. However, due to adverse weather conditions in 2007, management twice lowered guidance. In 2008, management lowered guidance after reporting earnings each and every quarter. In September 2008, the Board suspended payment of the quarterly cash dividend.
In addition, the highly leveraged balance sheet, highly seasonal earnings, and the write-down of equity due to the impairment of assets are concerns. The stock is rated a Sell.
Ness Technologies (NSTC) By Ian T. Gilson Dec 29, 2008 Ness Technologies (NSTC) is a small player in the IT services market. The company has undergone significant changes over the past year, with turnover in its senior management team and choppy results during 2007. Ness posted lower-than-expected 3Q08 results, hurt mainly by a slowdown at its U.S. financial services and NessPRO software distribution businesses. Moreover, challenges remain with an uncertain global economy and volatile equity market. We believe there is risk that the company will not be able to reach its target and we have low confidence on the company's current estimates. We are lowering our estimates for 2008 and 2009, and maintain our Sell rating on NSTC shares with our six-month target price of $4.00 Central Garden & Pet Company (CENT) By Steven Ralston Dec 26, 2008 The shares of Central Garden & Pet (CENT) are rated a Sell. Management is addressing a difficult environment of weak retail sales, adverse weather, and higher costs, which have affected the company s sales and profitability. The benefits from the strategy of expanding the operating margin through a positive mix shift towards higher margin products and the optimization of the supply chain have been delayed as higher graincosts have negatively impacted demand and profitability. Management continously lowered both sales and earnings guidance throughout fiscal 2008.
CarMax, Inc. (KMX) By Paul Raman Dec 24, 2008 CarMax, Inc. (KMX) continues to face a difficult used-vehicle environment, largely due to aggressive incentives being offered by new vehicle manufacturers. Declining used-car value due to the ongoing weakness in the overall economy and higher funding cost at the CarMax Auto Finance is eroding the margins of the company. The current economic slowdown and reduced consumer spending had a negative impact on the company s retail business. It is aggressively cutting prices on trucks and SUVs to reduce inventory. A drop in earnings and a higher valuation make us apprehensive about the stock's performance in the near term. Thus, we rate the stock a Sell and maintain our six-month target price of $6.50. ReneSola, Ltd. (SOL) By Jonathan Kolb Dec 23, 2008 ReneSola, Ltd. (SOL) - With a predominantly bearish outlook, we downgrade SOL to a SELL recommendation. The company is dogged with tightening credit markets, rising debt levels, pressure on ASPs, rising feedstock costs, and fissures in its Chinese customer base.
Furthermore, the company divested its stake in its polysilicon joint-venture with Zhongsheng Steel and is planning to postpone part of its expansion plans. In the long-run however, increased captive generation of solar wafer and ingots along with falling polysilicon prices will improve its cost structure and improve earnings.
KeyCorp (KEY) By Neena Mishra Dec 22, 2008 KeyCorp (KEY) - KeyCorp's 3Q08 loss from continuing operations came in at $0.10 per share, substantially worse than the estimates. The lower-than-expected results mainly stemmed from a steep rise in loan loss provisions and an adverse impact of derivative contract losses. However, positive trends were visible in some fee-based businesses and the expenses remained well controlled. Also, the Community Banking group continues to perform well. Credit quality was mixed during the quarter.
Though the company has taken steps to reduce its exposure to the Commercial Real Estate (CRE) home builders segment, we anticipate higher losses in CRE portfolio in the coming quarters in view of its sizeable exposure to risky markets. As such, we are maintaining our Sell rating on the shares of KEY, with a six-month price target of $7.50 per share.
UST Inc. (UST) By Steven Ralston Dec 19, 2008 UST Inc. (UST) is the leading producer of moist smokeless tobacco products and dominates the premium sector of the domestic market. However, over the last 15 years, UST has been steadily losing market share to discounters in the sub-premium categories. With the announced acquisition by Altria Group of UST Inc. for $69.50 per share in cash, the potential price appreciation for UST stockholders is now limited.
Hence, the rating is a Sell. The acquisition is expected to close by the first week of January 2009.
General Motors Corp. (GM) By Paul Raman Dec 18, 2008 General Motors Corp. (GM) has failed to secure any loan from the government until now. The U.S. government was supposed to provide $25-50B in aid as DIP [debtor-in-possession] financing. The government also rejected the immediate $12 billion short term loan as the UAW [United Auto Workers] refused to accept any wage cut until 2011. General Motors is looking at money under the Troubled Asset Relief Program (TARP). However, this is still under review. Any aid should force the company to only make 35MPG+ vehicles. Management should be purged and outsiders brought in. Tariffs and quotas should be implemented for imported vehicles from overseas. Consumers should be allowed to deduct their automotive interest.
Lastly, global alliances should be forged among producers in North America, Europe and Asia. From an equity holder perspective, we rate the shares a Sell with a six-month target price of $0.00.
Ford Motor Company (F) By Paul Raman Dec 17, 2008 Ford Motor Company (F) is one of the largest automobile manufacturers in the world. We believe that the company should file for bankruptcy to rid itself of unions, pension and healthcare issues, and separate dealerships from the rest of the company. The U.S. government should provide $25-$50B in aid, which will act as DIP [debtor-in-possession] financing. Any aid should force the company to only make 35MPG+ vehicles. Management should be purged and outsiders brought in. Tariffs and quotas should be implemented for imported vehicles from overseas. Consumers should be allowed to deduct their automotive interest.
Lastly, global alliances should be forged among producers in North America, Europe and Asia. From an equity holder perspective, this compels us to rate the shares a Sell with a six-month target price of $0.00.
CRA International (CRAI) By Sean P. Smith Dec 16, 2008 CRA International (CRAI) - We maintain our Sell rating on shares of CRA International prior to the release of year-end results. Third-quarter financial results fell well short of Street expectations, which marked the second such disappointment in the last three quarters. As such, we anticipate that investors will demand evidence that management has properly addressed the company's operational problems before affording a higher multiple to CRAI shares.
Although the shares rebounded quickly following the first earnings miss of the year, we do not believe that a similar rebound is warranted in this case. The company will report fiscal year-end results in early January.
SanDisk Corp. (SNDK) By Ian T. Gilson Dec 15, 2008 SanDisk Corp. (SNDK) - SanDisk reported disappointing Q3 earnings results due to negative product gross margin and excess inventory. We expect the company's earnings losses will be followed in 2009 even with substantial cost cutting and restructuring efforts. We believe pricing is likely to remain weak until demand improves, which is not likely until the consumer spending picture strengthens. As such, we are reducing our estimates for 2008 and 2009.
We believe there is risk of further downside and do not expect any meaningful improvement in 2009. We therefore maintain our Sell rating on SNDK shares and lower our six month price target to $5.00.
TRW Automotive (TRW) By Paul Raman Dec 12, 2008 TRW Automotive Holdings Corp. (TRW) - TRW Automotive is affected by constant production cuts by OEMs [original equipment manufacturers], pricing pressure and lower production volumes in North America. The company has three business divisions: Chassis Systems, Occupant Safety Systems, and Automotive Components. The shift in consumer preferences from pickup trucks and SUVs to smaller and more fuel-efficient cars in North America and from large and mid-sized passenger cars to small cars in Europe is manifesting a greater-than-expected impact. Lower vehicle production levels and increased commodity costs are also likely to negatively impact the company.
As a measure, TRW is realigning capacities and reducing fixed costs. However, these are likely to increase restructuring and asset impairment expenses. Thus, we rate the stock a Sell with a target price of $3.00.
CEMEX S.A. de C.V. (CX) By Claudio Freitas Dec 11, 2008 CEMEX S.A. de C.V. (CX) - Currently, CEMEX is the third-largest cement company in the world, the fourth largest aggregates producer, and the largest ready-mix producer. The company is diversified by nation and region, and has a good growth record. It is a dominant force in Mexico, Spain, the U.K. and the U.S. We are keeping our Sell rating on CEMEX. The company posted weak results in the third quarter of 2008, together with a 74% year-over-year decline in net income. The continued weak cement volumes in Spain and the U.S. are problematic.
The short-term outlook for the company remains highly uncertain based on the downtrend in the residential, industrial/commercial sector, and the infrastructure sector as well due to the fall in the real estate prices throughout the world.
Radio One (ROIAK) By Ann Northrop Dec 10, 2008 Radio One (ROIAK) - We maintain our Sell rating on Radio One. In our view, the company s high leverage (6.6x) will hinder its acquisition activities in the near future and thus, its attempts to diversify into higher-growth areas. Moreover, in a period of declining earnings and cash flow, Radio One is nearing its covenant limits. The company is precariously close to its bank covenant limits, at a time when EBITDA is falling at an accelerating rate (down 25% in 3Q08).
ROIAK's leverage was 7.23x at September 30th, bumping its 7.5x covenant limit, and similarly its interest coverage ratio was 1.77x, slightly above its lower limit of 1.75x. Although, the company is utilizing sale proceeds to pay down debt, we think any additional near-term sales will be small and thus don't expect debt levels to decline substantially.
Primus Guaranty Ltd. (PRS) By Neena Mishra Dec 09, 2008 Primus Guaranty Ltd. (PRS) - Headquartered in Bermuda, Primus Guaranty sells credit swaps as protection against the risk of default on investment grade obligations. The primary purchasers of credit swaps are commercial and investment banks as well as portfolio managers, insurance companies, and other financial institutions seeking to reduce the credit risk exposure in their fixed-income security portfolios. During October 2008, Primus Financial, the issuing subsidiary was downgraded by both S&P and Moody's to AA+ and AA1 (from AAA and Aaa ) respectively, with negative implications. Additionally, S&P and Moody's downgraded the 7% notes issued by Primus Guaranty to "BB" and "BA1," respectively.
In view of the challenging conditions, the company has decided to manage its business in the amortization mode versus the growth mode earlier. After reviewing the results, we are maintaining our Sell recommendation on the shares.
Waddell & Reed Financial (WDR) By Neena Mishra Dec 08, 2008 Waddell & Reed Financial (WDR) - Kansas-based Waddell & Reed, one of the nation's oldest mutual fund asset managers, offers investment management, investment product underwriting and distribution, as well as shareholder services. A slowdown of sales momentum and a sharp decline in assets under management (AUM) impacted asset-based fee revenue [in its most recent quarter], which led to an overall decline in revenue across all channels. Assets under management decreased 14.7% sequentially (though up 0.7% year-over-year) to $59.8 billion as of September 30, 2008.
We anticipate the decline in AUM to continue to hurt the top-line for the next few months, in view of the continued downturn in the global markets. We have reduced our FY08 and FY09 EPS estimates and downgraded our recommendation on the shares to a Sell with a six-month target price of $10.75 per share. Nortel Networks (NT) By David Weissman Dec 05, 2008 Nortel Networks Corporation (NT), a leading developer of telecom equipment, is facing severe business challenges as a result of the global economic slowdown, increasing competition, and reduced capital spending on the part of several of its major customers. Nortel's third quarter 2008 financial results were significantly below our expectations. Revenue from all four business segments decreased year-over-year with further declines expected over upcoming reporting periods. In addition, increasing cash burn rate and a highly leveraged balance sheet remain concerning.
We do not find any near-term growth catalyst for the company and downgrade our rating to Sell, based on the company's debt level, disappointing financial expectations, and general economic weakness that may impede near-term improvements.
MGIC Investment Corporation (MTG) By Eric Rothmann Dec 04, 2008 MGIC Investment Corporation (MTG) - MGIC is the largest private mortgage insurer in the U.S., offering private mortgage insurance across the country, the District of Columbia, and in Puerto Rico through its subsidiary, Mortgage Guaranty Insurance Corporation [MGIC]. MTG's core 3Q08 results were slightly worse than we anticipated. The results continued to be impacted by increases in both the number of delinquent loans and foreclosures due to a further decline of home prices and slowing of economy.
In addition, higher loss severities, especially in California and Florida, also negatively affected the results. The company has taken several combative actions to bolster its capital. We expect significant overhangs for the industry in general and for MTG in particular, for at least the next several quarters. Our Sell rating is maintained on the shares.
Cost Plus, Inc. (CPWM) By Rob Plaza Dec 03, 2008 Cost Plus, Inc. (CPWM) - As expected, Cost Plus reported disappointing results for the third quarter. The company's sales trends have been weak for some time, and the current macro economic headwinds are not helping the company's prospects. Mall traffic suffered a severe decline in September, and those trends should continue throughout the holiday shopping season. This will further pressure the company's sales and profit margins.
What's more, losses are mounting, and its balance sheet remains weak. This combination does not point to a higher stock price. We reiterate our Sell rating and our six-month target price of $0.50. Hibbett Sports (HIBB) By Rob Plaza Dec 02, 2008 Hibbett Sports Inc.'s (HIBB) third quarter earnings per share were $0.01 below consensus estimates, but the company raised its full-year EPS guidance from $0.93-$1.03 to $0.97-$1.04. Hibbett shares have held up reasonably well this year, despite the challenging retail environment. The company's results have been boosted by the company's continued store expansion, share buybacks and easy comparables in fiscal 2008. Looking ahead to next year, the company should open another 60-70 stores, but it will not be buying back shares and comps from fiscal 2009 are much better than last year. That means EPS growth will have to come from stronger sales trends and/or higher profit margins.
We don't see either of those occurring in this difficult retail environment. We reiterate our Sell rating on Hibbett Sports. Our six-month target price is $9.50, or 10x our fiscal 2010 EPS estimate.
DTS Inc. (DTSI) By Ann Northrop Dec 01, 2008 DTS Inc. (DTSI) - Increasing demand for DTS technologies in emerging applications such as cars and PCs augur well for the company's earnings growth post-recession. The company is also diversifying its business in the virtual audio technology and broadcast market, and is enhancing the use of DTS technology in standard definition applications, which we believe will drive revenue growth in 2009 and beyond. Moreover, with the completion of the sale of its Digital Cinema business, DTS should be able to concentrate on the Consumer business and benefit from the anticipated acceleration of the high definition cycle.
Nevertheless, we think Street estimates are high ($0.72 for 2009E vs. Zacks $0.51) and do not incorporate the risks posed by a potentially deep and protracted consumer-led economic slowdown, which could choke demand from the auto and PC markets. Valuations are lofty even using Street estimates, (24x 2009 EPS), at a time of murky visibility.
AutoNation, Inc. (AN) By Paul Raman Nov 28, 2008 We expect AutoNation to be hurt by a continuing weak new car market. The company is disproportionately exposed to Florida and California, states that will be hit the most by a slowing car market. Moreover, the credit crisis in the U.S. led to a 22% decline in AutoNation's sales, followed by a 32% decline in net profits in the third quarter of 2008. AutoNation's higher debts and interest charges are also major causes of concern. Tight credit and a slumping U.S. demand are expected to continue to affect sales and thereby margins in the near term. Should it happen, the bankruptcy of General Motors, one of the major customers, would largely affect the operations of AutoNation. As a result, we rate the shares a SELL with a target of $6.00. Mack-Cali Realty Corp. (CLI) By Greg Sukenik Nov 26, 2008 Mack-Cali Realty Corporation (CLI) - Mack-Cali Realty is a fully integrated, self-administered, and self-managed office real estate investment trust (REIT). The company owns, operates leases, manages, and develops Class A office and industrial/flex properties, primarily in suburban markets in the northeastern US. CLI reported 3Q08 FFO [funds from operations] of $1.02 per share compared to $0.93 in 3Q07. The increase was due to lower expenses and share counts. Operations held up relatively well in the 3rd quarter, although we have cut our 2009 FFO estimates by 6% due to macroeconomic conditions.
Office occupancies in the company's core markets have increased at a rapid pace from last year. As such, Mack-Cali Realty will have a difficult time holding occupancy and increasing rents. We think suburban office landlords will have a tough time over the next 12 months.
Dell, Inc. (DELL) By Ian T. Gilson Nov 25, 2008 Dell, Inc. (DELL) -- The rapid decline in corporate profits, highly illiquid capital markets, and the recessionary outlook are likely to dampen corporate capital spending. This is likely to have a major impact on Dell's server business. Added to this is the continued decline in consumer spending as shown by the decrease in sales of PCs and cell phones over recent months. Although Dell has announced plans to cut costs its marketing model of being the lowest priced supplier to the consumer in a declining market is likely to reduce margins over the coming quarters.
Given the uncertainty of the length of the current world wide recession, we have a low confidence factor on our earnings forecasts over the next two years. Consequently, we maintain our SELL rating with a target price of $8.00 a share.
School Specialty, Inc. (SCHS) By Rob Plaza Nov 24, 2008 School Specialty, Inc. (SCHS) - School Specialty reported disappointing results for its fiscal second quarter, and management lowered its guidance for the fiscal year 2009. The shortfall was due to a decline in state revenue. SCHS is highly dependent on its state and local government for its revenues. A slowing economy and de-leveraging in the credit markets will only exacerbate the problems in government funding. We expect this trend to continue, and that will hurt School Specialty's results.
As a result, we are lowering our fiscal 2009 and fiscal 2010 estimates to reflect a reduction in state spending. We are also downgrading SCHS shares from Hold to Sell. Our target price is $11, or 8x our fiscal 2010 estimate.
Huntington Bancshares Inc. (HBAN) By Eric Rothmann Nov 21, 2008 Huntington Bancshares Incorporated (HBAN) - Huntington Bancshares is a regional bank headquartered in Columbus, Ohio. HBAN conducts business through over 600 branches in Ohio, Michigan, Indiana, Kentucky, Pennsylvania and West Virginia, and a network of over 1,400 ATMs. Net interest income contributed 70% of HBAN's adjusted net revenue in 2007, while non-interest sources such as service charges on deposits, mortgage banking, trust, and insurance contributed the balance. HBAN reported a 3Q08 net income of $75.1 million or $0.17 per share. Excluding the market-related losses, securities impairments and deferred tax-valuation allowance benefit, core results came in at $0.27 per share.
Credit quality continued to worsen. Net charge-offs were 0.82% of average total loans and leases, up 18 bps sequentially and 35 bps year-over-year. Non-performing assets as a percentage of related assets increased by 11 bps sequentially to 2.52% at the end of 3Q08. Increase in charge-offs and increase in allowance for credit losses are expected going forward.
Banco Santander (STD) By Ann Heffron Nov 20, 2008 We are cutting our rating on Banco Santander to Sell from Buy following the recent surprise announcement of a rights offering. On November 10, 2008, Santander stated that they would be issuing 1.599 billion new shares through a rights offering at a price of 4.50 per share for a total capital increase of 7.2 billion. As a result, we are reducing our EPADS estimates $2.03 from $2.05 for 2008 and to $1.79 from $2.25 for 2009. The share increase combined with deteriorating economic conditions in Spain and appreciation of the US$ against the will likely depress Santander's share price over the near term. Santander reported third quarter net earnings of 2.2 billion, up 6% year over year. The rise in nonperforming loans was the only sour note in an otherwise satisfactory performance, especially relative to European peers. CarMax (KMX) By Paul Raman Nov 19, 2008 CarMax continues to face a difficult used-vehicle environment, largely due to aggressive incentives from new vehicle manufacturers. Declining used-car value due to the ongoing weakness in the overall economy and higher funding cost at the CarMax Auto Finance is eroding the margins of the company. The current economic slowdown and reduced consumer spending had a negative impact on the company's retail business. It is aggressively cutting prices on trucks and SUVs to reduce inventory. A drop in earnings and a conservative guidance for 2009 along with a higher valuation make us apprehensive about the stock's performance in the near term. Thus, we rate the stock a Sell and maintain our six-month target price of $6.50. JC Penney (JCP) By Rob Plaza Nov 18, 2008 We reiterate our Sell rating on JC Penney shares. The company reported weak third quarter earnings and again lowered guidance. JC Penney now expects to earn $0.90-$1.05 per share in the fourth quarter, well below our previous estimate of $1.31. What's more, the difficult macro environment is taking its toll on consumer discretionary spending and JC Penney's results. We are heading into the important holiday shopping season, which is the worst time for any retailer to find its stores struggling to generate sales growth. That does not bode well for JCP's earnings or its stock price. We are reducing our estimates for 2008 and 2009. Our target price is $14 or about 8x our fiscal 2009 EPS estimate. Pain Therapeutics (PTIE) By Jason Napodano Nov 17, 2008 Pain Therapeutics, Inc. is focused on the development of novel treatments for the management of pain and other therapeutic indications. Lead pipeline candidate, Remoxy, an abuse-deterrent version of pain drug oxycodone, should have significant commercial opportunity upon approval due to its ability to reduce the potential of drug abuse / misuse. While we believe that Remoxy will see significant demand once launched, we are concerned that the candidate may not receive final approval at the upcoming FDA action date of December 10, 2008. Remoxy received a mixed response from an FDA advisory panel recently; we fear that the FDA might require the company to conduct additional studies to establish its abuse-deterrent qualities. We are also concerned about the possibility of the company facing a patent infringement lawsuit for Remoxy. Moreover, the rest of the company's pipeline is too early stage to get excited about. As such, we downgrade our rating to Sell with a target price of $5. B/E Aerospace (BEAV) By John Nelson Simon Nov 14, 2008 Airlines continue to ground aircraft, which certainly will have a negative effect on MRO revenues. Further, there is fear that the current worldwide economic malaise will cause orders for new aircraft to evaporate - or at least be stretched out - ala 9-11. In addition, the future for Aerospace/Defense stocks is clouded by the probable alterations the incoming administration will make to defense expenditures. In light of this unsettling environment, we are keeping our sell rating on BEAV remains Sell. Furthermore, the company's substantial indebtedness will require that a significant portion of cash flow be used for debt service, which will limit its ability to use cash flow for other areas of its business and could adversely affect the holders of its securities. BEAV is the world's largest manufacturer of cabin interior products for commercial aircraft as well as for business jets. It is also the leading aftermarket distributor of aerospace fasteners and consumables. Post Properties (PPS) By Greg Sukenik Nov 13, 2008 Post Properties has frozen new development starts for the foreseeable future, due to the rapidly deteriorating economic environment. In addition, there has been a material slowdown in leasing activity at properties current under development. The company is not funding its dividend at the AFFO [Adjusted Funds From Operations] level; as such, a cut is probable in 2009. The company has taken $42.5 million ($0.95 per share) of charges so far in 2008 due to asset impairments, hurricane losses, severance charges, and expenditures related to the strategic review. Post Properties, Inc. expects to incur an additional $40 million + ($0.90 per share) of expenses to repair stucco facades at about 30 properties. Depsite large share price declines, we maintain our Sell rating. PPS has assets in markets that have been particularly hard hit by job losses and we expect the company to underperform its peer group in the early part of 2009. The company's condo segment has slowed considerably, and this is no longer a viable business in a free-falling housing market. Zions Bancorporation (ZION) By Neena Mishra Nov 12, 2008 ZION's 3Q08 operating earnings of $0.51 per diluted share were substantially below our estimate as well as consensus. The earnings for the quarter were mostly impacted by the sharp increase in provisions coupled with impairment and valuation losses on securities. Ongoing weakness in the Southwestern residential real estate markets, where the company has significant exposure, continues to hurt the results. Though loan and deposit growth were satisfactory, NIM declined further during the quarter. After reviewing the results, we have lowered our EPS estimates, based on our concerns for further credit deterioration and dilutive effect of the capital raise. We are maintaining our Sell recommendation on the shares of ZION. General Motors (GM) By Paul Raman Nov 11, 2008 General Motors Corporation is one of the largest automobile manufacturers in the world. But weak North American sales, falling production volumes and rising raw material costs are increasing our concern for the stock. Significant incentives to stimulate sales and keep inventories lean are eating into margins. Furthermore, GM sales are hampered by poor resale values. The company is at a disadvantage compared to its competitors owing to huge pension and health care costs. GM has also delayed new model launches and has slowed production. It apprehends a significant cash crunch and might even face bankruptcy if the U.S. economic slump continues and it fails to get any government aid. These issues compel us to rate the shares a Sell with a six-month target price of $2.00. AutoNation, Inc. (AN) By Paul Raman Nov 10, 2008 We expect AutoNation to be hurt by a continuing weak new car market. The company is disproportionately exposed to Florida and California, states that will be hit the most by a slowing car market. Moreover, the credit crisis in the U.S. led to a 22% decline in AutoNation's sales followed by a 32% decline in net profits in the third quarter of 2008. AutoNation's higher debts and interest charges are also a major cause of concern. Tight credit and slumping U.S. demand are expected to continue to affect sales and thereby margins in the near term. As a result, we rate the shares a SELL with a target of $4.50. Trimeris Inc. (TRMS) By Grant Zeng Nov 07, 2008 Trimeris develops therapeutic agents for the treatment of viral diseases based on its fusion inhibition technology that blocks viral entry into host cells. Sales of its lead drug Fuzeon have been declining dramatically since 1Q08 due to fierce competition from Selzentry and Isentress. The collaboration amendment with Roche and several management changes further cast a shadow on the company's future. We maintain our Sell rating on Trimeris with a $2.00 price target. At this point, it is very difficult to value the stock. We believe qualitative factors prevail currently. There are many uncertainties about Trimeris due to the management change and collaboration amendment with Roche. The company is profitable but will find it tough to stay so if Fuzeon sales continue their downward slide. Cymer Inc. (CYMI) By Ken Nagy Nov 06, 2008 Cymer Inc. dominates the market for DUV light sources contained within excimer laser-based photolithography systems used in the production of semiconductors. We feel growth in ArF Lithography will drive growth in the second half of 2009. CYMI gross margins have grown from 37.5% in the first quarter of 2005 to 53.9%, but have dipped down to the 47-48% range. Competition in ArF has intensified as Gigaphoton has just shipped its 100th ArF system and probably now has a 40% market share. Consequently, we are initiating our Sell rating on CYMI shares to a hold keeping our target price of $22.00. We believe that the company should trade at an above average industry multiple. The firm is in a cyclical industry that is currently in the down portion of a cycle. Accordingly, we our initiating our price target, at $22.00 which corresponds to a 15.2x P/E. Overstock.com (OSTK) By Rob Plaza Nov 05, 2008 Overstock.com's results were essentially in-line with our estimates. Sales matched our forecast, while net loss per share was $0.10 better than our estimate after backing out a one-time gain from the retirement of convertible debt. The company also announced that it was going to restate its financials for the last five years due to a glitch in its accounting systems. Looking ahead, we expect sales trends to worsen because consumers will continue to spend fewer dollars on discretionary items. Overstock.com will try to cut costs where it can. Unfortunately, the weak economic environment will make the already competitive online retail space even more cutthroat. Increasing competitive pressures will put additional pressure on profit margins, and Overstock.com is not in a position to handle a contraction in its profit margins. We reiterate our Sell rating and $7.50 target price. Hartford Financial Services (HIG) By Neena Mishra Nov 04, 2008 Hartford Financial Services shares had lost more than half their value Thursday morning, based on the concerns that the company may need to raise additional capital soon. Further, the management was not able to provide a forecast of the year-end capital margin due to the ongoing market volatility. 3Q08 core losses of $1.40 per share were substantially worse than the estimates. The company also lowered its guidance for FY08 to $4.30 4.50 per share from $9.20 9.50 per share earlier. After reviewing the results and revised management guidance, we are reducing our FY08 and FY09 EPS estimates and downgrading our recommendation on the shares to a Sell. At the current price level, shares of HIG trade at 0.48x its September 30, 2008 reported book value of $41.80 per share and 0.36x its adjusted book value (excluding AOCI) of $55.63 per share. It is difficult to anticipate significant price-to-book value multiple expansion at this point in time due to the challenging environment, as we expect the company to face increased competition and higher losses in the investment portfolio in the coming quarters. As such, our six-month price target of $8.50 per share incorporates values for both the P&C and Life segments at 0.21x our estimated book value of $40.00 per share (excluding AOCI) as of March 31, 2009. This price target also equates to 1.5x our estimated earnings for the year 2008. Hubbell Inc. (HUB.B) By Ken Nagy Nov 03, 2008 Orange, CT-based Hubbell is an original equipment manufacturer (OEM) of electrical products. The firm operates and reports results along three segments Electrical, Power and Industrial Technology. The Electrical Products segment serves the commercial, residential, industrial, utility and telecom/other markets. Hubbell reported third-quarter 2008 results that exceeded both top and bottom line expectations. The good storm season was the primary driver of growth in the last quarter, although pricing actions and acquisitions also contributed. The company is benefiting from restructuring actions, with management continuing to attribute some of the margin expansion to production efficiencies and improved cost management. The share price dropped sharply in September, but has stabilized since. We tend to think that there could be further downside, given the recessionary macro-economic trends and the positive correlation between Hubbell's growth and the growth of the national GDP. Additionally, both residential and nonresidential construction activity appears to be slowing and could worsen in 2009. Consequently, we are downgrading the shares to Sell. Embarq (EQ) By David Weissman Oct 31, 2008 We maintain our Sell rating for Embarq, the fourth largest local U.S. telecommunications carrier that was spun off from Sprint Nextel in 2006 and has agreed to consolidate with CenturyTel under an $11.6 billion merger deal (expected to close in 2Q 2009). Lower revenue forecasts for 2008, acceleration of access line loss, recently revised guidance, and expectations of lower valuation levels for CenturyTel following the merger support our thesis. We believe that the local phone business in North America, in particular service offered by regional carriers, has significant challenges ahead as local access lines continue to decline (reflected in EQ's most recent quarterly results) and as consumers and business customers migrate to alternative solutions, including VoIP, wireless and cable offerings. We also believe pricing pressure and the need to invest further in broadband infrastructure may strain balance sheet conditions as the high level of debt and weak cash position remain concerning. Hewitt Associates (HEW) By Steven Ralston Oct 30, 2008 Hewitt Associates Inc. is the clear leader in the emerging human resources BPO (business process outsourcing) market. But with the unemployment rate having risen to 6.1% in August, the expected economic weakness should hamper the financial results of employment-related companies such as Hewitt Associates. The Sell rating is maintained due to expected economic weakness in the next few quarters. Employment service companies generally participate in the later stage of economic recovery. Since management has been raising EPS guidance for fiscal 2008 based on the company's strong performance, earnings momentum investors have driven the stock to new highs. Any earnings disappointment should result in dramatic stock weakness. The target price is a 13 P/E multiple on trailing 12 month EPS. Given the minimal expected price appreciation, the stock is rated a Sell. Navigant Consulting (NCI) By Sean P. Smith Oct 29, 2008 Shares of Navigant Consulting are trading at 14.9x and 13.0x our 2008 and 2009 EPS estimates, respectively, and at a 7% premium to the 2009 peer group average. On the second-quarter earnings call, management effectively lowered its full-year outlook for operations in the core business. Until we see further evidence that the NCI's business has fully recovered from the issues that plagued the company throughout much of 2007, we do not believe that a premium valuation, relative to the peer group, is warranted. Our price target reflects of multiple of 13x our 2008 EPS estimate. NCI will report Q3 results on October 30, 2008. Telefonos de Mexico, S.A.B. de C.V., or Telmex (NYSE: TMX) By Claudio Freitas Oct 28, 2008 We are reiterating our Sell recommendation on Telmex. Third quarter 2008 results were disappointing. Net income was down 28% as revenue fell amid stiff competition. Mexican domestic growth has stalled creating fiercely competitive environment, and the company is experiencing price erosion. The global credit crunch and the recession in the U.S. are also source of great concern, since Mexico and the U.S. have strong economic ties. Lastly, Telmex's valuation seems excessive when compared to other Latin American operators. All considered, we are reiterating our current Sell recommendation on TMX. We believe that the stock is going to trade at an EV/2008 EBITDA between 3.5x and 4.0x. Thus, our target price is US$14.25. The Corporate Executive Board (EXBD) By Sean P. Smith Oct 27, 2008 We maintain our Sell rating on shares of The Corporate Executive Board following the release of third-quarter results. We believe the shares of The Corporate Executive Board are overvalued near current levels, in light of the weak conditions in the current operating environment. Although Q3 results came in ahead of expectations, we have reduced our fourth-quarter 2008 and full-year 2009 EPS estimates as the company's outlook remains modest, in part due to the fact that EXBD has yet to improve its cross-sell ratio. Rather, the cross-sell ratio continues to deteriorate, and management has lowered its forward guidance as a result. We have identified several concerns within the company's current operating statistics, which we have detailed above. Given the current operating pressures, along with ongoing concerns regarding a slowing economy, we believe the shares should trade at a discount to the peer group average. Our target price of $22.00 per share equates to roughly 10x our 2009 EPS estimate. In light of these issues, we anticipate that the company's shares will under-perform the market in the near-term. Cadence Design Systems (CDNS) By Ian T. Gilson Oct 24, 2008 Cadence appears to be in big trouble as the company's CEO resigned unexpectedly amid mounting financial problems and disappointing results. Adding to the upheaval, the company delayed its Q308 earnings results, expected to be released on October 22nd, on improper accounting issues related to contract revenues signed during Q1. Cadence has been losing share to Synopsys and is struggling through a downturn in the semiconductor cycle. Cadence also withdrew its bid for Mentor Graphics, further dimming its growth prospects. We maintain a Sell rating on the shares and cut our six month price target to $2.50. SanDisk (SNDK) By Ian T. Gilson Oct 23, 2008 SanDisk is the largest supplier of flash storage card products based on NAND technology used in digital cameras, multimedia cellular phones, USB flash drives, and a growing variety of other digital consumer devices. SanDisk reported disappointing Q3 earnings results due to negative product gross margin and excess inventory. We expect the company's earnings losses will be followed through the first half of 2009 even with substantial cost-cutting and restructuring efforts. We believe pricing is likely to remain weak until demand improves, which is not likely until the consumer spending picture strengthens. We believe there is risk of further downside. SanDisk does not expect any meaningful improvement through the first half of 2009. We therefore maintain our Sell rating on SNDK shares with a six month price target of $10.00. Salix Pharmaceuticals (SLXP) By Jason Napodano Oct 22, 2008 Salix Pharmaceuticals is focused on drugs used in the treatment of a variety of gastrointestinal diseases. The company is facing difficult times thanks to the FDA's approval to three generic versions of lead product, Colazal. As such, we expect 2008 to be an extremely challenging year for the company, with a significant decline in top-line growth. Moreover, we expect the company to post a loss in 2008 and 2009. We believe that the main potential for the company lies with the approval of additional indications for Xifaxan, particularly the irritable bowel syndrome [IBS] indication. However, we were disappointed to hear that Salix expects to file the NDA [new drug application] for the IBS indication in mid-2010, a significant delay from the previously announced timeline of late 2008 / early 2009. While new product approvals should help restore investor confidence, the possibility of a patent challenge for Xifaxan will remain an overhang on the shares in the coming quarters. While new product launches and new indications for Xifaxan should support a recovery in revenues in 2009, we do not expect earnings to recover prior to 2010. We maintain a Sell rating with a target price of $5. The McClatchy Company (MNI) By Ann Northrop Oct 21, 2008 Formed in 1998 and based in Sacramento, California, The McClatchy Company, the third-largest newspaper company in the United States, owns and publishes 80 newspapers 30 dailies and 50 nondailies serving both large metropolitan cities and small communities. McClatchy Company newspapers include the Miami Herald, Sacramento Bee, Star-Telegram (Fort Worth), Kansas City Star, Charlotte Observer and News & Observer (Raleigh). As of December 31, 2007, McClatchy Company had an average paid daily circulation of over 2.7 million and a Sunday circulation of roughly 3.4 million. As expected, McClatchy cut its dividend in September by 50%. In the midst of the secular and cyclical slowdown in print advertising, circulation revenue has fallen for the third consecutive year (-5.2% in 2Q08), while ad revenue sinks disproportionately, as a third of MNI's revenues are in the hard-hit California and Florida markets. To survive the downturn, McClatchy is focusing on building its Internet operations, paring its operating cost structure and reducing its heavy debt-load. If successful, the company will emerge from the recession a leaner, more efficient and nimble hybrid print-online news provider with a portfolio of market-leading newspapers and websites. However, in our view, MNI can't shrink its costs fast enough, posing a risk of tripping bank covenants if the revenue decline should accelerate. JC Penney Co. (JCP) By Rob Plaza Oct 20, 2008 JC Penney Co. sells family apparel, jewelry, shoes, accessories, household goods, and home furnishings through its stores, catalogs and website. The company reported weak September sales and gave equally pessimistic third quarter guidance. JC Penney now expects to earn $0.50-$0.60 per share in the third quarter, down from its previous guidance of $0.70-$0.75. We reiterate our Sell rating on the shares. The difficult macro environment is taking its toll on consumer discretionary spending and JC Penney's results. We are heading into the important holiday shopping season, which is the worst time for any retailer to find its stores struggling to generate sales growth. That does not bode well for its earnings or its stock price. We are reducing our estimates for 2008 and 2009. JCP shares currently trade at 7.4x our fiscal 2008 EPS estimate and 8.9x our fiscal 2009 EPS estimate. Despite the low P/E multiple, JC Penney shares have further downside, in our view. The company's worsening sales trends heading into the holiday season will probably lead to further negative estimate revisions. Our target price is 8x our fiscal 2009 EPS estimate or $19. General Motors (GM) By Paul Raman Oct 17, 2008 General Motors shares currently rate a Sell with a six-month target price of $4.00. Along with other original equipment manufacturers (OEMs) such as Ford and Chrysler, GM is being pressed by industry-wide manufacturing overcapacity. The company is at a disadvantage compared to its competitors, owing to huge pension and healthcare costs. GM provides pension, healthcare and life insurance benefits to more than 400,000 retirees and their families in the U.S. Furthermore, GM sales are hampered by the poor resale value of its vehicles. GM cars on average fetch $3000 less per vehicle than their counterparts. High raw material costs are also a serious problem facing automakers. The prices of commodities have risen dramatically in the past few months, and GM is finding it difficult to pass this on to its customers. Telmex (TMX) By Claudio Freitas Oct 16, 2008 Telefonos de Mexico, or Telmex, headquartered in Mexico City, operates in Mexico, the U.S., Puerto Rico, Brazil, Chile, Argentina, Peru, and Columbia. Most of the South American operations were acquired through the company's purchase of AT&T Latin America, which was closed in February 2004. The key Mexican market remains stagnant, even though growth in the Internet division is still positive. Competition is also increasing in the Mexican market. We expect this trend to continue in the following quarters. The short-term outlook seems uncertain due to the recent global financial crisis in the U.S. All considered, we are reiterating our current Sell recommendation on TMX. We believe that the stock is going to trade at an EV/2008 EBITDA between 4.5x and 5x, closer to Telesp in Brazil. Thus, our target price is US$21.50. KeyCorp (KEY) By Neena Mishra Oct 15, 2008 Cleveland-based KeyCorp, a bank-oriented financial service company, provides commercial and retail banking, commercial leasing, investment management, consumer finance, as well as investment banking products to individual, corporate, and institutional clients throughout the United States and, for certain businesses, internationally. Though the company has taken steps to reduce its exposure to the Commercial Real Estate (CRE) residential properties segment, we anticipate higher losses in CRE portfolio in the coming quarters, particularly in view of its sizeable exposure to the difficult markets of California and Florida. KeyCorp is scheduled to release its 3Q08 financial results on October 21, 2008. Ahead of the earnings release, we are maintaining our Sell rating on the shares of KEY, with six-month price target of $6.00 per share. Overstock.com (OSTK) By Rob Plaza Oct 14, 2008 Overstock is an online closeout retailer, offering discount, brand-name merchandise for sale primarily over the Internet. Its merchandise offerings include: CDs, DVDs, magazines, and books, music, videos and games (BMV); as well as bed and bath goods, kitchenware, watches, jewelry, electronics, sporting goods, and designer accessories. We remain negative on OSTK shares. The company's business model is flawed. Its gross margin is not large enough to support its operating cost structure. What's more, competitive pressures are increasing in the e-commerce space, and Overstock.com doesn't stack up to larger and better-run companies in online retail. And with the economy weakening further, consumers are becoming increasingly reluctant to spend money on discretionary purchases. As a result, we are reducing estimates for 2008 and 2009. We believe it is likely that the company will report disappointing results for the third quarter and warn that the fourth quarter will also fall short of market expectations. We reiterate our Sell rating and $7.50 target price. Carmike Cinemas (CKEC) By Sean P. Smith Oct 13, 2008 Carmike Cinemas, Inc. faces a difficult operating environment, along with its own financial challenges. Although the company has had success with recent ticket price increases, the gains have not been sufficient to offset declining attendance. We do not expect material share price appreciation from current levels and are initiating coverage on shares with a Sell rating. The Columbus, Georgia-based company's current balance sheet leaves it with little financial flexibility. The overwhelming majority of the company enterprise value is comprised of debt, and the management recently suspended the quarterly dividend to focus on reducing leverage. While we believe that this was a wise strategic move, the management must be diligent in ensuring that the company does not violate any existing debt covenants going forward. In light of the negative economic outlook, we believe that the company has a limited margin for error in executing its operating strategy. Further, we currently project that Carmike will post declines in both EBITDA and Theatre Level Cash Flow in 2008, while once again generating net losses. Our price target of $3 equates to an EBITDA multiple of approximately 6.5x our 2008 EBITDA estimate and approximately 5x our estimated 2008 Theatre Level Cash Flow. While these multiples represent discounts to Carmike's larger peers, we believe it is appropriate, given the company's business strategy and financial position. AAR Corporation (AIR) By John Nelson Simon Oct 10, 2008 AAR Corp. provides goods & services to commercial airlines and the defense establishment. On the commercial side, demand for he Wood Dale, Illinois-based company?s product offerings moves with the size of the fleet -- which is declining -- while requirements for its services may grow as the airlines outsource more maintenance, repair and overhaul work. For defense, AIR designs and manufactures mobility products, aircraft internal cargo loading/unloading systems and composite structures. AIR has leveraged its balance sheet to support its commercial aircraft leasing activities, which, at this point, is not considered a positive. Consequently, Zacks opinion has been lowered to Sell and our target price has been adjusted to reflect the current market environment. The average P/E for the Aerospace/Defense suppliers group is 7.23. Red Robin Gourmet Burgers (RRGB) By Ann Northrop Oct 09, 2008 Red Robin is a casual dining restaurant chain that serves burgers (52% of food sales in 2007) made from beef, turkey, chicken, veggie patties, fish, pork or pot roast as well as salads, sandwiches and other entrees. At the end of 2007, the company owned and operated 249 restaurants and franchised 135. Despite the 26.2% drop in RRGB's share price since we downgraded the shares to Sell on August 18 (versus an 18.6% drop in the S&P500), we believe the stock will continue to under-perform both the larger market and the restaurant industry. Red Robin's traffic began declining long before the onset of rising gas prices in October 2007 began choking business in the casual dining sector. Moreover, 2009 consensus EPS estimates are 12% higher than ours, and we think our estimate may prove aggressive if the economic slowdown is deeper or more protracted than we currently anticipate. Although RRGB shares appear cheap relative to its peers, we think there is more downside price potential if the company misses consensus EPS estimates. The St. Joe Company (JOE) By Greg Sukenik Oct 08, 2008 The St. Joe Company, a publicly held, operationally diverse real estate company, is based in Jacksonville, Florida. It is one of Florida's largest real estate developers. JOE is engaged in town, resort, commercial and industrial development in addition to land sales and commercial real estate operations. The company also has significant interests in the timber industry. JOE continues to reduce headcounts and cap ex spending in response to a rapidly deteriorating residential Florida real estate market. In addition, the company has responded by paying off most of its debt which will allow the company to hold lots instead of selling into a depressed market. There are no signs that the housing situation will get better in the next six months and we think the worst is yet to come. Near term, we would stay away from companies with exposure to the residential building business. While we think the company is a good long term investment due to its extensive land holdings in one of the fastest growing states, we are changing our near term recommendation to Sell. Charlotte Russe Holdings (CHIC) By Rob Plaza Oct 07, 2008 Charlotte Russe is a mall-based specialty apparel retailer, which carries both branded and private-label merchandise, targeting women in their teens and twenties. The retailer offers a broad assortment of fashionable merchandise. We reiterate our Sell rating on Charlotte Russe shares. In July, the company reported soft results for the fiscal third quarter and issued disappointing guidance for the fiscal fourth quarter. Economic conditions have worsened in the last two months, which has added to Charlotte Russe's problems. We are again reducing our estimates. Our fiscal 2008 EPS estimate goes from $1.18 to $1.16, and our fiscal 2009 EPS from $1.00 to $0.94. CHIC shares may look cheap at these levels, but we expect further deterioration in its business. Our estimates are well below the consensus view, and we expect consensus estimates to continue falling over the next few months. Marriott International (MAR) By Sean P. Smith Oct 06, 2008 We are lowering our rating on shares of Marriott from Hold to Sell following the release of Q3 financial results. The operating environment in the lodging sector has weakened substantially in recent quarters. Additionally, the company's timeshare segment is struggling, with sales down and the credit market turmoil preventing the company from completing an expected note sale. Management now expects RevPAR [revenue per available room] at comparable North American company-operated properties to decline by at least 3% in 2009. Given the current state of industry fundamentals, we expect that RevPAR declines could exceed management's expectation. Although we believe that Marriott is well positioned for the long-term, we expect that operating conditions will weaken further before improving. Our price target of $19.50 reflects a multiple of approximately 8x our 2009 EBITDA estimate. Internap Network Services (INAP) By Ian T. Gilson Oct 03, 2008 Internap Network Services offers a suite of network optimization solutions that allow companies to transfer business-critical applications to the Internet. It offers products and services that optimize Internet applications for e-commerce, customer relationship management (CRM), multimedia streaming, voice-over Internet-protocol (VoIP), virtual private networks (VPNs), and supply chain management. Being a small player in a competitive industry, Internap has a relatively low revenue growth rate. Although the company has been gaining traction in its data colocation services, it is witnessing softness in its content delivery network business. Much of this has been caused by the weakening economy, which has forced INAP to trim its 2008 guidance twice. Though the company has been making important upgrades to its CDN product, there has been a lackluster performance in the segment in the last few quarters. As such, we are initiating our coverage on INAP with a Sell rating and a price target of $2.50. AutoNation, Inc. (AN) By Paul Raman Oct 02, 2008 AutoNation is the largest automotive retailer in the U.S., and is about twice the size of its nearest competitor. As of December 2007, the company owns and operates 322 new vehicle franchises from 244 dealerships located in major metropolitan markets in 16 states, with about 75% of sales being focused in the Sunbelt region of the U.S. We expect Autonation to be hurt by a continuing weak new car market. The company is disproportionately exposed to Florida and California, states that will be hit the most by a slowing car market. Moreover, the credit crisis in the US led to a 12% fall in AutoNation's sales in the second quarter of 2008. Tight credit is expected to continue affecting sales and thereby margins in the near term. As a result, we rate the shares a Sell with a target of $9. LeapFrog Enterprises (LF) By Steven Ralston Oct 01, 2008 LeapFrog Enterprises is a leading provider of technology-based learning products and proprietary content. The company designs and develops educational products, as well as related interactive software and content, under multiple product platforms, including the LeapFrog, LeapPad, Leapster, and Quantum Leap brands. The retail environment remains challenging. Toy sales declined in the U.S. between 2002 and 2006. If not for the 53rd week in the calendar year, toy sales would have fallen 2% in 2007. Turnarounds usually take longer than initial expectations. In addition, LeapFrog is highly dependent on several new products that require consumer acceptance for the company's turnaround to be successful. Hudson City Bancorp (HCBK) By Eric Rothmann Sep 30, 2008 Hudson City now operates over 100 branches throughout New Jersey, eastern New York, and Fairfield County, Connecticut. HCBK operates in a traditional thrift model; it is a community and customer-oriented retail savings bank offering traditional deposit products, residential real estate mortgage loans, and consumer loans. Consumer lending, the bread-and-butter of many regional and local institutions, will continue to face significant headwinds to revenue growth, as the mortgage banking remains under pressure in 2008. Home equity lending should not be expected to offset this compression, as residential values are expected to moderate over the near term. The negatives with respect to credit quality for the banking industry has yet to fully been realized and should continue to weigh on the industry as home sale continue to wane at this time. We will maintain our rating recommendation, until sustainable data points have emerged. CRA International (CRAI) By Sean P. Smith Sep 29, 2008 CRA International, formerly Charles River Associates, is a global provider of legal, regulatory, business consulting, and other expert services through its more than 680 consultants. CRA International's consultants combine economic and financial analysis with expertise in litigation and regulatory support, business strategy and planning, market and demand forecasting, policy analysis, engineering, and technology strategy. We are downgrading our rating on shares of CRAI from Hold to Sell. The company reported third-quarter financial results that fell significantly short of Street expectations. The company's utilization rate fell to 71% in the third quarter of 2008, down from 74% in the second quarter of this year, and from 76% in the year-ago period. Given that this is the second significant earnings miss within the last three quarters, we believe that a discounted multiple, relative to the peer group average, should be applied to shares of CRAI until management is able to provide sufficient evidence that it has a strong handle on the company's operations. UST, Inc. (UST) By Steven Ralston Sep 26, 2008 UST, Inc. is the leading producer of moist smokeless tobacco products and dominates the premium sector of the domestic market. However, the company has been steadily losing market share to discounters in the sub-premium categories over the last 15 years. With the announced acquisition by Altria Group for $69.50 per share in cash, the potential price appreciation for UST stockholders is now limited. Hence, the rating is a Sell. UST's stock has traded in a P/E multiple range of 7 to 18 over the last five years. However, the stock traded below a 9 P/E, due to an adverse anti-trust court decision in March 2000, which ultimately required the payment of $1.26 billion in early 2003. We have expected UST's stock to trade in a P/E multiple range of 13 to 18. Interestingly, Altria Group's announced acquisition values UST at 18.3 times 2008 estimated earnings. The target price of $69.50 is the value of Altria's cash offer. Molson Coors Brewing Co. (TAP) By Steven Ralston Sep 25, 2008 Molson Coors, formed through the 2005 merger between Molson and Adolph Coors, has improved the company's scale and financial strength. However, higher input costs are compressing the company's overall gross margin and smoking bans are negatively impacting the U.K. operations. Of particular concern is the cost rationalization moves of the major brewers that are expected to result in the loss of the positive pricing trends enjoyed by the industry for the last two years. The Sell rating is maintained. With respect to premium lager-style beer, the three major brewers -- Anheuser-Busch, Molson Coors, and SABMiller -- control approximately 77% of the market. Growing or even maintaining market share requires increased investments in marketing. The Canadian brewing industry is a mature market and is characterized by intense competition for volume and market share. Georgia Gulf Corp. (GGC) By Paul Raman Sep 24, 2008 Georgia Gulf is a leading North American manufacturer and marketer of two integrated chemical product lines, chlorovinyls and aromatics. Its key products are chlorine, caustic soda, vinyl chloride monomer (VCM), polyvinyl chloride (PVC), cumene, phenol and acetone. Under the Royal Group brand, Georgia Gulf manufactures a complete line of custom and other vinyl-based building and home improvement products. GGC overpaid for Royal Plastics, a supplier of housing products. The acquisition was entirely financed with debt, and the company is now in danger of violating debt covenants. The remaining product lines of the company are suffering from overcapacity. The company is expected to report losses in the near term on the back of rising feedstock and energy costs. Demand for the company's products is also expected to remain weak due to the downturn in the US housing and auto markets. Moreover, the company may need to sell its assets to comply with the debt covenants. As a result, we have a Sell rating with a target of $2.50. Acorda Therapeutics (ACOR) By Jason Napodano Sep 23, 2008 Acorda Therapeutics is a biotechnology company whose mission is to develop and market therapies to restore neurological function in people with spinal cord injury (SCI), multiple sclerosis (MS) and related conditions of the nervous system. Core technologies developed by Acorda for SCI and MS have potentially broad applicability for other neurologic conditions. The company released full data from its phase III MS-F204 clinical trial this month. The data is consistent with previous phase III data on Fampridine-SR showing improvement in walking speed and leg strength for the responder population. The next step for Acorda is the NDA filing early in 2009. And, given the two positive pivotal trials, we believe the odds favor approval in 2010. However, we remain unconvinced that Fampridine-SR will see significant use upon approval. And, at the current level, we believe Acorda's stock is overvalued and expectations for profitability and future cash flow are too high. Our target is $22. CEMEX, S.A. (CX) By Claudio Freitas Sep 22, 2008 We are keeping our Sell rating on CEMEX, S.A. de C.V. Second-quarter results were weak. The continued weak cement volumes in Spain, U.S. and Mexican markets are problematic. Higher-than-normal rain during the second quarter 2008 affected volumes during the quarter. The short-term outlook for the company remains highly uncertain based on the downtrend in the residential, industrial/commercial and the infrastructure sectors as well as due to the real estate prices in Spain, U.K. and U.S. We believe that the recent takeover of the Venezuela subsidiary by the government is also troublesome. In our opinion, the stock's valuation deserves a discount, due to the still above average leverage, the considerable exposure to some volatile Latin American economies, higher inflation and interest rates in Mexico and its huge exposure to the U.S. and Spanish markets, both highly affected by concerns over housing prices. General Motors (GM) By Paul Raman Sep 19, 2008 General Motors is one of the largest automobile manufacturers in the U.S. and the world. Weak North American sales, falling production volumes, and rising raw material costs are increasing our concerns for the stock. Significant incentives to stimulate sales and keep inventories lean are eating into margins. Furthermore, GM sales are hampered by poor resale values. The company is at a disadvantage compared to its competition owing to huge pension and health care costs. These issues compel us to rate the shares a Sell with a six-month target price of $7.00. Our outlook for the Auto and Auto Parts Sector industry is Negative. The industry is very concentrated, with the top 8 auto companies having more than 90% of revenues and the top 50 auto parts companies having 80% of revenues (the top 4 tire producers have 75% of the market). The auto companies focus on the design, assembly and marketing, while the components come from the auto parts suppliers. Anheuser-Busch (BUD) By Steven Ralston Sep 18, 2008 Anheuser-Busch is benefiting from industry consolidation of production and a growing international beer presence from the management's astute acquisition strategy. Though there are concerns about higher commodity costs, especially energy, agricultural, and packaging costs, the results year-to-date demonstrate the management's ability to implement productivity programs to offset the negative inflationary effects. The company has received a buyout proposal for $70 per share in cash. The stock has rallied to our target; therefore, the recommendation has been lowered to a Sell. Anheuser-Busch stock has traded in a P/E range of 16 to 27 over the last five years. The current P/E is 22.8. The target of $70 is based on the friendly takeover/merge price of $70 cash. The company's business is seasonal. The warm weather months of April through September generate a substantial percentage of the company's revenues, approximately 55%. Therefore, both sales and margins can be affected by cool or inclement weather in key markets, inhibiting earnings progress. Novatel Wireless (NVTL) By David Weissman Sep 17, 2008 Novatel Wireless, a leading provider of wireless data access cards and embedded solutions, reported challenges associated with business execution, delays in next-generation product shipment due to technical issues, and reduced financial resources due to an audit committee's ongoing accounting review. We believe these factors will continue to impact the company throughout the remainder of this fiscal year. Novatel did not provide any specific time frame or visibility for when improved opportunities from its new products can be derived. In addition, the market for wireless data access equipment has recently become more competitive as several large vendors launched innovative products with attractive pricing. Novatel's second quarter 2008 preliminary earnings results were significantly below our estimates. We downgrade our recommendation to a Sell as we assess appropriate signs for improved conditions. Sycamore Networks (SCMR) By David Weissman Sep 16, 2008 Sycamore Networks continues to experience disappointing financial performance as revenues and earnings are trending lower on a sequential quarter basis. The company's fourth quarter fiscal 2008 financial results were significantly below our expectations, primarily attributed to a contract loss from one of its major customers. On September 5, Sycamore announced fiscal fourth quarter 2008 earnings results. Total revenue of $15.1 million was down 60.3% from the year-ago quarter and down 24.9% sequentially. Gross margin was 28.7% compared to 46.5% in the prior-year quarter. Adjusted diluted EPS, excluding impairment charges, was a loss of $0.03 for the fourth quarter of fiscal 2008. We remain concerned that Sycamore may have difficulty generating sustainable business from carriers for its product capabilities as larger vendors address these markets with competing solutions. Furthermore, demand for optical networking appears to be more favorable than in past years, but Sycamore's financial reports suggest year-over-year revenue decline in spite of the acquisition of Eastern Research in 2006. We downgrade our rating to a Sell due to a lack of near-term visibility for improvements and concern that business will depend on only a limited number of customers. We do not find any meaningful investment catalysts for the company that may drive a near-term valuation improvement. According to our view, revenue will remain lumpy through Fiscal 2009 as Sycamore is dependent on only a limited number of customers for revenue. Expenditures are expected to increase due to new product introductions and integration related costs associated with the acquired entity. PMI Group (PMI) By Neena Mishra Sep 15, 2008 PMI Group's second quarter net operating loss of $3.03 per diluted share was substantially worse than the estimates. The results suffered from increased losses in the U.S. Mortgage Insurance Operations, partially offset by strong results from International Operations. The company also wrote off the carrying value of its investment in FGIC. The company recently sold its Australia and Asia operations, in order to support its capital and liquidity position but we do not rule out additional capital raises in the near-to-medium term. We have further increased our FY08 and FY09 loss estimates to $10.80 per share and $2.30 per share respectively, based on the company?s 2Q08 results and further deterioration in the housing environment. Our adjusted EPS targets reflect higher losses, slightly offset by increased revenues. At current levels, shares of PMI trade at 0.13x PMI's 2Q08 book value of $24.72 per share, which is significantly below its historical 2.2x high. The rise in delinquencies and defaults on loan payments may continue for a longer time than expected earlier, leading to increased losses for the mortgage insurers. We do not expect any correction to the multiple in the near future. Sanmina-SCI (SANM) By Steve Biggs Sep 12, 2008 Although Sanmina has shown some growth in its core EMS segment and has a reduced cost structure, the company is currently struggling with industry-wide weakness. After exiting its PC business, Sanmina will focus on its core business and margin improvement. The company posted a better than expected Q3. However, we would like to see sustained growth before becoming more positive. Although the sale of its PC business will help Sanmina as it eliminates a slowing business, we believe it is still too early to get involved in SANM stock until we get a clear outlook on how the remaining business performs on a stand-alone basis. Given the weak economic environment, we maintain a Sell recommendation on SANM shares. We believe that the outlook for the industry is poor as core sectors continue to face sluggish demand coupled with fewer acquisitions. Our six-month price target remains at $1.00. Salix Pharmaceuticals (SLXP) By Jason Napodano Sep 11, 2008 Salix Pharmaceuticals, Ltd. suffered a major setback late last year when the FDA granted approval to three generic versions of its lead product, Colazal. This is devastating news for Salix as Colazal was a significant contributor to both the top and bottomline. As such, we expect 2008 to be an extremely challenging year for the company with a significant decline in both revenues and earnings. In order to make up for lost revenues, Salix is investing significantly in both R&D and SG&A. New product launches and new indications for rifaximin should support a recovery in revenues from 2009 onwards. We believe Salix will also seek suitable in-licensing opportunities in order to grow revenues. However, we do not expect earnings growth to resume prior to 2010. We expect the stock to remain under pressure given the possibility of a generic company initiating a patent challenge for Xifaxan. We maintain a Sell rating on the stock with a $5 target price. Our target price is based on 1.4x our 2008 sales estimate of $177 million. Hibbett Sports (HIBB) By Rob Plaza Sep 10, 2008 The company's sales continue to look pretty good, but that sales growth is coming at the expense of its profit margins. Compared to the second quarter of last year, its gross margin was down 40 basis points (bps) and its operating margin was down 80 bps. We continue to believe the difficult consumer spending environment will pressure the company's results. We maintain our Sell rating. Our target price is $16, which is about 16x our fiscal 2009 EPS estimate and in-line with the company's long-term earnings growth rate. There are still too many near-term negatives that prevent us from becoming too bullish on the retail group. These negatives are well known and include a weak economy (possible recession), continued deterioration in housing, dislocations in the credit markets, higher food and energy prices, and a lack of consumer confidence. Clearly, these risks are negatively impacting all areas of retail. In recent months, several economic reports have pointed to weak economic growth. MGIC Investments (MTG) By Eric Rothmann Sep 09, 2008 MTG Investment Corporation's core 2Q08 results were $0.09 per share below our expectations. The results continued to be impacted by increases in both the number of delinquent loans and foreclosures due to a further decline of home prices and slowing of economy. In addition, higher loss severities, especially in California and Florida, also negatively impacted the results. The company has taken several combative actions to bolster its capital. We expect significant overhangs for the industry and for MTG, in particular, for at least the next several quarters. However, given 2Q08 results we have moderated our FY08 and FY09 EPS further to take into account expectations for continued pressures on the housing markets over the near term. We maintain our Sell rating on the shares. The shares have retracted from the near perfection price to book multiple level of approximately 1.1x, which was driven by the pending merger of MTG with Radian (now terminated). Currently, the shares of MTG trade at 0.41x its 2Q08 book value of $22.92 per share (substantially above its peer group median). Our new six-month price target of $8.35 per share incorporates a blended median and MTG's current multiple, or 0.40x to our book value estimate of $20.90 per share for December 31, 2008. We think the current valuation is tenuous at best, as any negative deviation from expected results or additional negative trends from the housing market data or overall economy should be expected to be amplified on the shares of MTG. Cadence Design Systems (CDNS) By Steve Biggs Sep 08, 2008 The company appears to be losing share to Synopsys (SNPS) and is struggling through a downturn in the semiconductor cycle. Cadence posted year-over-year declines in the first half of 2008 and had hoped to make up for falling revenue in the second half. However, instead of a better second half, CDNS dramatically lowered guidance and is expecting accelerating declines. Although we were skeptical of its predicted second half rebound, leading to our Sell recommendation, recent guidance was well below our low expectations. CDNS blamed the shortfall on difficult semiconductor environment and softness in consumer demand. Although the stock has fallen significantly this year, we believe it will fall farther given CDNS poor outlook. We therefore believe that the stock should trade at a discount to its peer group. More challenging economic conditions are likely to affect the semiconductor industry and flow through to the EDA market as well, although at this point, Cadence appears to be the hardest hit. CDNS closest competitor is Synopsys, which is currently trading at a P/S [price-to-sales] multiple of 2.3x our 2008 revenue estimate, but with a much higher growth rate and estimates a good revenue visibility through 2008. We set a six-month target price of $5.00, which represents a P/S multiple of 1.2x our 2008 sales estimate of $4.33. Novatel Wireless (NVTL) By David Weissman Sep 05, 2008 Novatel did not provide any specific time frame, or visibility, when improved opportunities from its new products can be derived. In addition, the market for wireless data access equipment has recently become more competitive as several large vendors launched innovative products with attractive pricing. Novatel's second quarter 2008 preliminary earnings results were significantly below our estimates. Autonation, Inc. (AN) By Paul Raman Sep 04, 2008 We expect Autonation to be hurt by a continuing weak new car market. The company is disproportionately exposed to Florida and California, which are states that will be hit the most by a slowing car market. As a result, we rate the shares a Sell with a target of $9.00. DTS, Inc. (DTS) By Ann Northrop Sep 03, 2008 The company's fortunes depend on the rate at which consumers adopt technologies, like DVDs and home theaters. Apart from the current economic slowdown, which we anticipate will continue to dampen earnings growth, we think the slowing demand for DVD players will moderate revenue growth for DTS' DVD components. We think the valuation multiple expansion is unjustified, given the risks posed by a worse-than-expected consumer-led economic slowdown, and rate the stock a Sell. Huntington Bancshares (HBAN) By Eric Rothmann Sep 02, 2008 Continued economic weakness across the Midwest markets supports the need for increased loan loss provisions. We expect this weakness in the housing and credit environments to continue to affect the company, creating the potential for negative overhangs over the next several quarters. Hence, we have reduced our 2008E and 2009E EPS and reiterate our Sell recommendation on the shares. Mack-Cali Realty (NYSE: CLI) By Greg Sukenik Aug 29, 2008 We are maintaining our Sell recommendation due to macroeconomic factors. Office occupancies in the company's core markets have increased at a rapid pace from last year. As such, CLI will have a difficult time holding occupancy and increasing rents. We think suburban office landlords will have a tough time over the next 12 months. National job growth numbers are negative and corporations are not expanding. Office landlords could see substantial cash flow declines as leases roll in 2008 and 2009. Zions Bancorporation (Nasdaq: ZION) By Neena Mishra Aug 28, 2008 ZION's 2Q08 operating earnings of $0.66 per diluted share were substantially below our estimate as well as consensus. The earnings for the quarter were mostly impacted by the sharp increase in provisions, coupled with impairment and valuation losses on securities. Ongoing weakness in the southwestern residential real estate markets, where the company has a significant exposure, continues to hurt the results. United Therapeutics (UTHR) By Jason Napodano Aug 27, 2008 Although we believe current business fundamentals are solid, we are seeing several potential hiccups coming in the next year. And, with the stock up 65% over the past twelve months and currently trading at 50x our 2008 EPS estimate, we believe investors are pricing the stock for near flawless execution. Expectations are high, and any slip-up, even minor, may cause a sell-off in the shares. As a result, we are initiating with a Sell rating and an $82 price target. Hibbett Sports (HIBB) By Rob Plaza Aug 26, 2008 The company's sales continue to look pretty good, but that sales growth is coming at the expense of its profit margins. Compared to the second quarter of last year, its gross margin was down 40 basis points (bps) and its operating margin was down 80 bps. We continue to believe the difficult consumer spending environment will pressure the company's results. Our target price is $16, which is about 16x our fiscal 2009 EPS estimate and in-line with the company's long-term earnings growth rate. SanDisk (SNDK) By Steve Biggs Aug 25, 2008 Following disappointing Q2 results, SanDisk announced measures to slow supply growth, including delaying the next phase of production ramp in Fab 4 as well as investment in Fab 5. We believe pricing is likely to remain weak until demand improves, which is not likely until the consumer spending picture strengthens. We therefore do not expect any meaningful improvement through the end of the year and believe there is risk of further downside. TIM Participacoes (TSU) By Claudio Freitas Aug 22, 2008 Second quarter 2008 results were once again weak, with lower EBITDA and a highly disappointing net loss. It also lowered top-line guidance for 2008. The competitive environment for the Brazilian wireless sector remains a problem, and has been the main reason behind the company being unable to translate competitive advantages into profits. Finally, a tighter monetary policy in Brazil and higher worldwide inflation and interest rates, particularly in Brazil, are matters of great concern. Ford Motor Company (F) By Paul Raman Aug 21, 2008 Ford's market share is likely to fall continuously due to its inclination to push pickup truck sales. The company is facing overcapacity, which leads to weak pricing. Moreover, costs are higher due to product launches and higher incentives. The company dropped its plans to become profitable by 2009 due to a difficult operating environment including an uncompetitive cost structure. These lead us to rate the stock a Sell and set a six-month target price of $4.00. American Axle (AXL) By Paul Raman Aug 20, 2008 Weak SUV demand is greatly affecting AXL's sales. Furthermore, high commodity costs and pricing pressure as well as production cuts by OEMs such as GM remain causes for concern. Thus, we rate the stock a Sell and set a six-month target price of $4.00. Post Properties (PPS) By Greg Sukenik Aug 19, 2008 Post is no longer for sale, as no buyer materialized. The company will instead try to reposition itself through asset sales ($500 million planned) and reductions in corporate and property level personnel. Operationally, the company has been underperforming its peer group; management has been focused on a sale of the company. Post had a weak 2nd quarter; the company reported a net FFO deficit of $0.29 per share. The loss was mainly due to impairments on development deals that will no longer be pursued. We are changing our near-term recommendation to Sell. Wilmington Trust (WL) By Neena Mishra Aug 18, 2008 Credit quality deteriorated during the quarter, with both non-performing assets (up 7 bps sequentially) and net charge-offs (up 14 bps) rising during the quarter. After reviewing the results, we are reducing our FY08 and FY09 estimates and maintaining our Sell recommendation on the shares with a six-month target price of $22.00 per share. Palm, Inc. (PALM) By Steve Biggs Aug 15, 2008 Palm's much anticipated launch of its next-generation Treo, the 800w, gives it a more competitive offering at the high-end of the market. The Centro also continues to gain traction, surpassing two million units in July. However, we believe the lack of a competitive offering has hurt Palm's position, and it will be very difficult for it to regain lost ground in the business market. The iPhone will pose problems for the Centro in the consumer market. We therefore reiterate our Sell rating with a six-month price target of $4.00. MBIA, Inc. (MBI) By Eric Rothmann Aug 14, 2008 Ratings downgrades by Standard & Poor's and Moody's should impact MBI's asset management business and its ability to write new insurance business. Comerica (CMA) By Neena Mishra Aug 13, 2008 We suspect that the credit related costs will remain high in the coming quarters, and the company may also need to cut its dividend. Deckers Outdoor (DECK) By Rob Plaza Aug 12, 2008 We believe the risks associated with DECK shares are not reflected in its current stock price. Nissan ADR (NSANY) By Paul Raman Aug 11, 2008 The overall automotive industry environment is a challenging one, with volumes going down. Alpharma, Inc. (ALO) By Jason Napodano Aug 08, 2008 Earnings are declining significantly mainly due to increased SG&A spending related to the launch of Flector Patch. National City (NCC) By Neena Mishra Aug 07, 2008 We continue to see elevated risks in NCC's mortgage and residential development loan portfolio. General Motors (GM) By Paul Raman Aug 06, 2008 Weak North American sales, falling production volumes, and rising raw material costs are increasing our concerns. Navigant Consulting (NCI) By Sean P. Smith Aug 05, 2008 We do not believe that a premium valuation, relative to the peer group, is warranted. Cooper Tire & Rubber (CTB) By Paul Raman Aug 04, 2008 The price increases of natural and synthetic rubber are significant drivers of higher raw material costs. Ness Technologies (NSTC) By Steve Biggs Aug 01, 2008 A deterioration of the political situation in the Mideast would have negative repercussions for the firm. Charlotte Russe (CHIC) By Rob Plaza Jul 31, 2008 CHIC shares may look cheap at these levels, but we expect further deterioration in its business. KeyCorp (KEY) By Neena Mishra Jul 30, 2008 We anticipate higher losses in the CRE portfolio in the coming quarters, particularly in view of its sizeable exposure to the difficult markets of California and Florida. Telmex (TMX) By Claudio Freitas Jul 29, 2008 The company still needs to increase the profit margins of its acquired units, which are currently well below that of its Mexican business. Liberty Property Trust (LRY) By Greg Sukenik Jul 25, 2008 The company has a large development pipeline that is only mildly pre-leased, which could be risky should the economy continue to soften in 2008. FormFactor, Inc. (FORM) By Ken Nagy Jul 24, 2008 We envision a strong future for FORM, but the next two quarters should not see strength in the DRAM market. SanDisk Corporation (SNDK) By Steve Biggs Jul 23, 2008 We do not expect any meaningful improvement through the end of the year and believe there is risk of further downside. Navigant Consulting (NCI) By Sean P. Smith Jul 22, 2008 We maintain our Sell rating on shares of NCI, based primarily on valuation. Freddie Mac (FRE) By Neena Mishra Jul 21, 2008 As the housing situation continues to worsen, we anticipate higher losses and write-offs in the coming quarters. Maguire Properties (MPG) By Greg Sukenik Jul 18, 2008 Maguire is running a deficit to free cash flow as the company is saddled with a high debt load due to heavy acquisition activity in 2007. Corp. Executive Board (Nasdaq: EXBD) By Sean P. Smith Jul 17, 2008 Given the current operating pressures, along with ongoing concerns regarding a slowing economy, we believe the shares should trade at a discount to the peer group average. Primus Guaranty (PRS) By Neena Mishra Jul 16, 2008 We anticipate that higher provisions and mark-to-market losses due to challenging credit environment will impact the results in the coming quarters. Photronics, Inc. (PLAB) By Ken Nagy Jul 15, 2008 In the near term, its growth will not outshine a maturing legacy product and soft markets. Cadence Design Systems (CDNS) By Steve Biggs Jul 14, 2008 2008 looks to be a challenging year for CDNS, and we don't foresee a turnaround over the near-term. Merge Healthcare, Inc. (MRGE) By Christopher Titus Jul 11, 2008 If Merge software is deemed to not meet quality standards, they may be prevented from marketing their products. Hudson City Bancorp (HCBK) By Eric Rothmann Jul 10, 2008 With 67% of the loan portfolio in residential real estate in the New York metropolitan area, considering the industry overhangs, we remain cautious given the current valuations. CSX Corporation (CSX) By Ann Northrop Jul 09, 2008 We believe the shares have been overbought and that CSX is expensive on a fundamental basis. Palm, Inc. (PALM) By Steve Biggs Jul 08, 2008 The coming 3G iPhone, priced at $199, will likely take much of Centro's share on networks where the two compete. LeapFrog Enterprises (LF) By Steven Ralston Jul 07, 2008 The economic weakness in the U.S. is expected to negatively impact spending on discretionary products and be a headwind. Sanmina-SCI (SANM) By Steve Biggs Jul 03, 2008 SANM has found buyers for the assets of its struggling PC business, however all but one business posted a decline in revenue again during the second quarter. Hudson City Bancorp (HCBK) By Eric Rothmann Jul 02, 2008 Considering the industry overhangs, we remain cautious given the current valuations. Molson Coors Brewing (TAP) By Steven Ralston Jul 01, 2008 The cost rationalization moves by the major brewers are expected to result in the loss of the positive pricing trends. CSX Corporation (CSX) By Ann Heffron Jun 30, 2008 We believe the shares have been overbought and that CSX is expensive on a fundamental basis. Centennial Communications (CYCL) By David Weissman Jun 27, 2008 We are not encouraged by management's outlook for the remainder of 2008 and early fiscal 2009. CEMEX (CX) By Claudio Freitas Jun 26, 2008 The continued weak cement volumes/revenues in the key U.S. and Mexican markets are problematic. Georgia Gulf (GGC) By Paul Raman Jun 25, 2008 Demand for GGC's products is expected to remain weak due to the downturn in the US housing and auto markets. Werner Enterprises (WERN) By Ann Heffron Jun 24, 2008 We are cutting our 2008 diluted EPS estimate to $0.80 from $0.87, reflecting higher estimated fuel costs now that oil is trading around $140 per barrel. MTG Investment (MTG) By Eric Rothmann Jun 23, 2008 We expect significant overhangs for the industry and for MTG, in particular, for at least the next several quarters. Ness Technologies (NSTC) By Steve Biggs Jun 20, 2008 Outside the Israeli government market, the company faces intense competition from established players. Telmex (TMX) By Claudio Freitas Jun 19, 2008 The company still needs to increase the profit margins of its acquired units, which are currently well below those of its Mexican business. PMI Group (PMI) By Neena Mishra Jun 18, 2008 We suspect the company may need to raise capital in the coming months in order to satisfy the requirements of the rating agencies. Nissan Motors (NSANY) By Paul Raman Jun 17, 2008 There are concerns about the new product launch costs that the company plans in fiscal 2008. Zions Bancorporation By Neena Mishra Jun 16, 2008 Lowering our EPS estimates lowered because of concerns about further credit deterioration. General Motors (GM) By Paul Raman Jun 13, 2008 Weak North American sales, falling production volumes and rising raw material costs increase our concerns. Avnet, Inc. (AVT) By Abdul Saleh Jun 12, 2008 The company has over $1.3 billion in long-term debt and liabilities (25% debt-to-total capital), which is substantially high. Amylin Pharmaceuticals (AMLN) By Jason Napodano Jun 11, 2008 There are few catalysts and operating expenses are soaring. We would avoid the name. Cost Plus World Market (CPWM) By Rob Plaza Jun 10, 2008 In our view, this deal is the best that Cost Plus shareholders could have hoped for because Cost Plus is not worth $4 per share. Soapstone Networks (SOAP) By Steve Biggs Jun 09, 2008 We expect the company to burn cash for the foreseeable future as the PNC ramp could be slower than expected and competition is likely to increase. Hibbett Sports (HIBB) By Rob Plaza Jun 06, 2008 We believe the difficult consumer spending environment will put pressure on the company's results for the remainder of the year. Acorda Therapeutics (ACOR) By Jason Napodano Jun 05, 2008 We believe Acorda's stock is significantly overvalued and expectations for profitability and future cash flow are entirely too high. Huntington Bancshares (HBAN) By Eric Rothmann Jun 04, 2008 Weaknesses in the housing and credit environments should continue to impact this company and the market during 2008. Mack-Cali Realty (CLI) By Greg Sukenik Jun 03, 2008 We think suburban office landlords will have a tough time in 2008. National job growth numbers are negative and corporations are not expanding. Alpharma (ALO) Near-Term Struggles By Jason Napodano Jun 02, 2008 We expect 2008 to be another transitional year for the company with earnings declining significantly. Embarq (EQ) Strained Market Outlook By David Weissman May 30, 2008 We believe that the local phone business in North America, in particular service offered by regional carriers, has significant challenges ahead. Cost Plus (CPWM) Difficult Market By Rob Plaza May 29, 2008 We see no signs that company will be able to right its ship in the near term, due to macro headwinds. Hibbett Sports (HIBB) Tough Environment By Rob Plaza May 28, 2008 We expect Hibbett's sales trends to remain soft and its profit margins to contract further. Barr Pharmaceuticals - Downgrading to Sell By Jason Napodano May 26, 2008 We expect the second quarter to be another challenging quarter for the company. Comerica (CMA) Still Feeling Mortgage Sting By Neena Mishra May 23, 2008 Deterioration in the residential real estate development loan portfolio, mainly in California, resulted in the increase of non-performing assets. BJ's Restaurants (BJRI) Overly Optimistic Estimates By Ann Northrop May 22, 2008 BJ's shares are richly priced and incorporate what we believe are overly optimistic same-store sales and earnings estimates. Palm, Inc. (PALM) New Products a Ways Off By Steve Biggs May 21, 2008 We don't expect to see any improvement soon and recommend investors to avoid the stock. Sony Corp. (SNE) Bested by Competition By Steve Biggs May 20, 2008 We believe Sony will continue to struggle as it faces competition from innovative digital products and increasing competition from low-cost Asian manufacturers. MBIA, Inc. (MBI) Further Downgrades Possible By Eric Rothmann May 19, 2008 Though the company has managed to hold on to its AAA credit rating with a negative outlook, we remain concerned for further rating downgrades. National City (NCC) Rough Neighborhood By Neena Mishra May 16, 2008 We continue to see elevated risks in NCC's mortgage and residential development loan portfolio, and expect higher losses in the coming quarters. Trimeris, Inc. (TRMS) Partnership Difficulties By Grant Zeng May 15, 2008 The collaboration amendment with Roche and several management changes have cast a shadow on the company's future. Supertex (SUPX) Tough Sales Climate By Abdul Saleh May 14, 2008 The company generated sales of $82.6 million, down from $98.0 million in fiscal 2007, mainly due to reductions in legacy EL driver sales and reduced foundry sales. TIM Participacoes (NYSE: TSU) Tough Competition By Claudio Freitas May 13, 2008 First quarter 2008 results were lower than expected, including higher operating expenses, weak cash flow and a considerable net loss. Ambac Financial (ABK) Negative Outlook By Eric Rothmann May 12, 2008 Various issues should continue to weigh on ABK's ability to generate revenue and EPS over the near term. Ness Tech (NSTC) Losing Out to Bigger Names By Steve Biggs May 09, 2008 Outside the Israeli government market, the company faces intense competition from established players. Salix Pharma (SLXP) Generics Taking Share By Jason Napodano May 08, 2008 We expect 2008 to be an extremely challenging year for the company with a significant decline in both revenues and earnings. Washington Mutual (WM) Missed Badly By Eric Rothmann May 07, 2008 WM's 1Q08 earnings at a negative $1.40 per share were abysmal, significantly missing our and the Street's estimates. FormFactor (FORM) Tough Market, Near Term By Ken Nagy May 06, 2008 The company has a very strong long-term growth profile, but it appears as though the DRAM market will not improve in the near term. Tollgrade Comm (TLGD) Market Lagging By David Weissman May 05, 2008 Several business opportunities have been deferred indefinitely as a result of restrictive capital spending on the part of the telecom service providers. LoopNet, Inc. (LOOP) Rife with Challenges By Sean P. Smith May 02, 2008 We believe that a challenging near-term operating environment will curtail share price appreciation. Liberty Property Trust (LRY) Slowdown Unhelpful By Greg Sukenik Apr 30, 2008 Liberty has a large development pipeline that is only mildly pre-leased, and poses risk should the economy continue to soften in 2008. Telmex (TMX) Stalled Mexican Growth By Claudio Freitas Apr 29, 2008 Its valuation seems excessive if compared to other Latin American operators, and the difficult economic environment in the U.S. is a source of concern. Corp. Executive Board (EXBD) Few Catalysts By Sean P. Smith Apr 28, 2008 Given the current operating pressures, along with ongoing concerns regarding a slowing economy, we believe the shares should trade at a discount. CEMEX, S.A. (CX) Slack Industry By Claudio Freitas Apr 25, 2008 We believe the construction business in the U.S. is already facing a more difficult environment, and that the short-term outlook for this industry remains highly uncertain. Primus Guaranty (PRS) Credit Market Exposure By Neena Mishra Apr 24, 2008 We anticipate that higher provisions and mark-to-market losses, due to challenging credit environment will continue to impact the results in the coming quarters. Amylin Pharma (AMLN) Too Expensive By Jason Napodano Apr 23, 2008 At this time the valuation on Amylin is not attractive. There are few catalysts and operating expenses are soaring. Overstock.com (OSTK) Remaining Skeptical By Rob Plaza Apr 22, 2008 The company believes its recent results demonstrate that it can profitably grow its business. We remain skeptical. Alpharma, Inc. (ALO) Considerable Risks By Jason Napodano Apr 21, 2008 We expect 2008 to be another transitional year for the company with earnings declining significantly mainly due to increased SG&A spending. Photronics, Inc. (PLAB) Aging Product By Ken Nagy Apr 18, 2008 In the near term, its growth will not outshine a maturing legacy product and soft markets. CSX Corporation (CSX) Overvalued By Ann Heffron Apr 17, 2008 We believe the shares have been overbought and that CSX is expensive on a fundamental basis. Hudson City Bancorp (HCBK) Mortgage Exposure By Eric Rothmann Apr 16, 2008 We take some exception to the company's significant use of purchased mortgages given credit and capital metric trends at this time. Salix Pharma (SLXP) Set Back by Generics By Jason Napodano Apr 15, 2008 The company suffered a major setback when the FDA granted approval to three generic versions of lead product Colazal. Arkansas Best (ABFS) Preparing for Worst By Ann Heffron Apr 14, 2008 We expect freight volumes to be hurt by continuing economic weakness through 2008's first half. Palm, Inc. (PALM) Bested By Competition By Steve Biggs Apr 11, 2008 We believe that the company currently lags competitors with its dated product offering. Marlin Business Services (MRLN) Feeling Weakness By Neena Mishra Apr 10, 2008 We suspect the weakening economy will continue to impact the new originations, and the delinquencies will continue to rise through 2008. Highwoods Properties (HIW) Poor Market Outlook By Greg Sukenik Apr 09, 2008 We think operations will get worse in 2008 and suburban office owners will have difficulties maintaining occupancy and increasing rents. CarMax Group (KMX) Tougher Terrain By Paul Raman Apr 08, 2008 CarMax continues to face a difficult used vehicle environment, largely due to aggressive incentives from new vehicle manufacturers. Avnet, Inc. (AVT) Debt & High Valuation By Abdul Saleh Apr 07, 2008 The company has over $1.3 billion in long-term debt and liabilities (25% debt-to-total capital), which is substantially high. Huntington Bancshares (HBAN) Persistent Overhang By Eric Rothmann Apr 04, 2008 Weaknesses in the housing and credit environment continue and are expected to overhang the market in 2008. LoopNet, Inc. (LOOP) Tough Marketplace By Sean P. Smith Apr 03, 2008 Continuing macro-economic challenges will likely put stress on the commercial real estate sector, in our opinion. Centennial Comm. (CYCL) Weak Performance By David Weissman Apr 02, 2008 Revenue performance has been lackluster, following slow subscriber growth and lower roaming traffic. Fidelity National Information Services - Still A Sell By Schaeffer`s Investment Research Apr 01, 2008 Falling cash flow and the slowing mortgage market are reasons to continue avoiding the stock. Liberty Property Trust (LRY) - Revenue Scarce By Greg Sukenik Apr 01, 2008 We expect rental rates to remain flat through 2008, as the company has assets in office markets that have high vacancies. Ness Technologies (NSTC) Small Fish in Big Pond By Steve Biggs Mar 31, 2008 Outside the Israeli government market, the company faces intense competition from established players. Sony Corp. (SNE) Losing Out to Innovators By Steve Biggs Mar 28, 2008 It faces increasing competition from innovative digital products and increasing competition from low-cost Asian manufacturers as the consumer market slows. Amylin Pharmaceuticals (AMLN) - Rising Expenses By Jason Napodano Mar 27, 2008 At this time the valuation on Amylin is not attractive. In the meantime, there are few catalysts and operating expenses are soaring. ZION Bancorp (ZION) Outlook Still Dire By Neena Mishra Mar 26, 2008 We have lowered our EPS estimates, based on our concerns for further credit deterioration. RAIT Financial Trust (RAS) Sources Drying Up By Greg Sukenik Mar 25, 2008 Most of the company's traditional short-term financing sources have dried up due to current problems in real estate credit markets. Embraer Air (ERJ) Brazilian Airports Failure By Claudio Freitas Mar 24, 2008 The complete failure of the Brazilian airports infrastructure will certainly be a problem for the company's local sales. Electronic Data Systems (EDS) Poor Outlook By Steve Biggs Mar 20, 2008 First quarter guidance was particularly disappointing, meaning EDS will have a back-end loaded year if it is to meet 2008 expectations. MTG Investment Corp. (MTG) Exposure to Bad Loans By Eric Rothmann Mar 19, 2008 Trends continue to be negatively impacted by issues within the residential mortgage markets, and we expect higher delinquency rates and additional losses from foreclosed loans. Hibbett Sports (HIBB) - Could Miss Guidance By Rob Plaza Mar 18, 2008 We believe the difficult consumer spending environment will prevent the company from meeting its current guidance. H&R Block - Numerous Issues Exist By Sean P. Smith Mar 17, 2008 Numerous issues continue to surround the company, including concerns related to liquidity, federal regulation and discontinued operations. Avici Systems (AVCI) - Lack of Visibility By Steve Biggs Mar 14, 2008 Throughout 2008, investors will likely be concerned about a lack of visibility. Atmel Corp. (ATML) Struggling with Earnings By Abdul Saleh Mar 13, 2008 Our concerns are over pricing pressures in its SmartCard products and lack of specifics about its restructuring programs and potential benefits. Sanmina-SCI (SANM) Businesses Struggling By Steve Biggs Mar 12, 2008 SANM has found buyers for the assets of its struggling PC business, however all but one business posted declining revenue in the most recent quarter. Salix Pharma (SLXP) Hurt by Generics By Jason Napodano Mar 11, 2008 The company suffered a major setback in December 2007 when the FDA granted approval to three generic versions of lead product, Colazal. Comerica (CMA) Bleak Outlook Continues By Neena Mishra Mar 10, 2008 Based on the results and credit quality concerns, we have further moderated our EPS estimates and our six-month target price. H&R Block (HRB) Variety of Problems By Sean P. Smith Mar 07, 2008 Numerous issues continue to surround the company, including concerns related to liquidity, federal regulation and discontinued operations. National City (NCC) Fallout Continues By Neena Mishra Mar 06, 2008 The company has reduced its quarterly dividend by 49% and also plans to raise non-dilutive Tier 1 capital during 1Q08. King Pharmaceuticals (KG) Generic Threat By Jason Napodano Mar 05, 2008 Most of the company's key products are either facing increased competition or generic threat. Altria Group (MO) Mired in Litigation By Steven Ralston Mar 04, 2008 Several large punitive damage awards have been upheld by appellate courts, especially the $50 million judgment paid out in the Boeken case. Avici Systems (AVCI) Not Out of the Woods By Steve Biggs Mar 03, 2008 Six months from now, investors will likely be concerned about a lack of visibility into revenue growth from software. Fidelity National (FIS) Liquidity Issues By Steve Biggs Feb 29, 2008 Cash flow is falling, and the company has been leveraging its balance sheet to fund its growth through acquisition strategy. 3Com Corporation (COMS) Deal Failed By Steve Biggs Feb 28, 2008 3Com Corporation and Bain Capital failed to win approval from The Committee on Foreign Investment in the United States (CFIUS) for Bain's acquisition of 3Com. Embarq (EQ) Losing Out to New Methods By David Weissman Feb 27, 2008 We believe that the local phone business in North America has significant challenges ahead as local access lines continue to decline. Georgia Gulf (GGC) Overpaid for Acquisition By Paul Raman Feb 26, 2008 Georgia Gulf recently overpaid for Royal Plastics, a supplier of housing products. Navigant Consulting (NCI) Overbought on News By Sean P. Smith Feb 25, 2008 Until we see further evidence that the NCI's business has fully recovered, we believe that the shares should trade at a discount to the peer group. Whole Foods Market (WFMI) Still Overvalued By Rob Plaza Feb 22, 2008 We think a more appropriate multiple is about 17x our fiscal year 2009 EPS estimate, or $31. Avici Systems (AVCI) Longer-Term Weakness By Steve Biggs Feb 21, 2008 Six months from now, investors will likely be concerned about a lack of visibility into revenue growth from software. Palm, Inc. (PALM) Losing to Competition By Steve Biggs Feb 20, 2008 We believe that the company currently lags competitors with its dated product offering. MBIA, Inc. (MBI) Long-Term Headwinds By Eric Rothmann Feb 19, 2008 Concerns for continued deterioration in the mortgage markets should not bode well for results over the next several quarters. Whole Foods (WFMI) Premium Not Justified By Rob Plaza Feb 15, 2008 Despite its decelerating, less profitable growth, WFMI shares are trading at 31.8x our fiscal year 2008 EPS estimate. Dillard's (DDS) Difficult Market By Rob Plaza Feb 14, 2008 Given these weak sales trends, we expect the company to experience further deterioration in its profit margins. Washington Mutual (WM) Bleak Outlook By Eric Rothmann Feb 13, 2008 The company's loan provisions should be expected to remain high over the next year and the potential for an additional dividend cut or suspension also remains. Embraer Air (ERJ) Problematic Brazilian Airports By Claudio Freitas Feb 12, 2008 The complete failure of the Brazilian airports infrastructure will certainly be a problem for the company's local sales. Corporate Executive Board (EXBD) Weak Outlook By Sean P. Smith Feb 11, 2008 We are downgrading our rating on shares of EXBD from a Hold to a Sell, despite the significant sell-off following the release of Q4 results. Sallie Mae (SLM) Downgrades Harmful By Neena Mishra Feb 08, 2008 A recent downgrade by S&P and the possibility of a downgrade by Moody's create more headwinds for the company. Salix Pharma (SLXP) Hurt by Generics By Jason Napodano Feb 07, 2008 The company suffered a major setback when the FDA granted approval to three generic versions of lead product Colazal. CSX Corp. (CSX) Downgraded on Valuation By Ann Heffron Feb 06, 2008 CSX is the most dear rail stock we cover as measured on a PEG basis, which is not supported by its fundamental outlook. Sony - Consumer Spending An Issue By Steve Biggs Feb 05, 2008 Increasing competition and slowing consumer spending lead us to downgrade SNE to a hold. Gerdau S.A. (GGB) Exposed to Economic Slowdown By Claudio Freitas Feb 04, 2008 The international economic environment for steel stocks is deteriorating, mainly in the U.S. construction sector. Natural Resource Partners (NRP) Macro Concerns By Zacks Investment Research Feb 01, 2008 We believe that the U.S. recession in 2008 will weaken demand and ultimately the price of coal and electricity. Sanmina-SCI (SANM) Myriad Issues By Steve Biggs Jan 31, 2008 The company is currently struggling with industry-wide weakness as well as its own internal problems. Amylin (AMLN) Priced for LAR Perfection By Jason Napodano Jan 30, 2008 The stock is trading at 15x our 2012 EPS estimate -- well above the peer-group at 10x, and that estimate assumes LAR posts sales over $1.8 billion. ChoicePoint (CPS) Trying to Dig Out By Steve Biggs Jan 29, 2008 The company is facing declining revenues from its mortgage business that will likely persist for the next few quarters. Huntington Bancshares (HBAN) Yield Cut? By Eric Rothmann Jan 28, 2008 The potential for a dividend cut places a critical underpinning for the share price at risk. Ness Technologies (NSTC) Missing Estimates By Steve Biggs Jan 25, 2008 Our fears that it would miss full year results are being realized, and we believe that there are better opportunities available to investors. CEMEX (CX) Shaky Market Outlook By Claudio Freitas Jan 24, 2008 The construction business is already facing a more difficult environment, and that the short-term outlook for this industry in the U.S. is highly uncertain. King Pharmaceuticals (KG) Hurt by Generics By Jason Napodano Jan 23, 2008 We believe that generic threat and mounting competition will continue to hinder both top- and bottom-line growth going forward. BuildersFirstSource (BLDR) Weak Market By Rob Plaza Jan 22, 2008 Its business model will not be able to overcome the overall weakness in the housing industry. Photronics, Inc. (PLAB) Soft Market By Ken Nagy Jan 21, 2008 In the near term, company growth will not outshine a maturing legacy product and soft markets. Electronic Data Systems (EDS) Industry Headwinds By Steve Biggs Jan 18, 2008 With much of the easy efficiency gains already taken, future growth will be harder to come by as contract signings have slowed. Hewitt Associates (HEW) - Too Pricey By Steven Ralston Jan 17, 2008 The stock appears overvalued and was artificially supported by the company s modified "Dutch Auction" tender offer. Zions Bancorp (ZION) Mortgage Exposure By Neena Mishra Jan 16, 2008 We have further lowered our FY07 and FY08 estimates, based on additional disclosure and our concerns for further credit deterioration. Centennial Communications (CYCL) Revenues Slow By David Weissman Jan 15, 2008 Revenue performance has been lackluster, following slow subscriber growth and lower roaming traffic. Alcon, Inc. (ACL) Expensive, with Setbacks By Jason Napodano Jan 14, 2008 We've become concerned about pipeline setbacks and the premium at which the stock currently trades. PMI Group (PMI) High Mortgage Exposure By Neena Mishra Jan 11, 2008 We expect higher losses in the fourth quarter, as the deterioration in housing market was worse than earlier projected. Overstock.com (OSTK) Not Controlling Costs By Rob Plaza Jan 10, 2008 The CEO commented that the company's fourth quarter results will come in lower than expected, due to larger discounts and increased marketing spending. Highwoods Properties (HIW) Tough Trends By Greg Sukenik Jan 09, 2008 Many of the company's Southeastern and Midwest markets still have high vacancies, which will make continued rent growth difficult. Navigant Consulting (NCI) Overpriced By Sean P. Smith Jan 08, 2008 We believe that investors will require tangible evidence that operations are actually improving before bidding the shares higher. eBay, Inc. (EBAY) Target Lowered By Rob Plaza Jan 07, 2008 We are drastically lowering our target price from $50 to $35, which is about 21x our 2008 EPS estimate. MannKind (MNKD) Technosphere Risks By Grant Zeng Jan 04, 2008 Commercialization is still at least two years away, and the company is burning cash at too high a rate. Georgia Gulf (GGC) Acquisition Issues By Paul Raman Jan 03, 2008 The acquisition of Poyal Plastics was entirely financed with debt, and the company is in danger of violating debt covenants. TAM S.A. (TAM) Past Difficulties Unforgotten By Claudio Freitas Jan 02, 2008 The accident in July 2007 at the Congonhas airport in Sao Paulo will continue to undermine the company?s results for the next few quarters. Marriott International (MAR) By Sean P. Smith Jan 01, 2008 We maintain our Sell rating on shares of Marriott International (MAR). The operating environment in the lodging sector has weakened substantially in recent quarters. Additionally, the company's timeshare segment is struggling, with sales down and credit market turmoil preventing the company from completing an expected note sale. Given our forecast for negative earnings growth in 2009, along with the ongoing uncertainty regarding the state of the economy and its potential impact on Marriott's lodging and timeshare businesses, we rate the shares a Sell at this time.
Marriott's low-end properties have experienced the greatest level of operating challenges to this point of the current downturn. The higher-end market as outperformed to this point, as group business remains relatively steady and consumers have yet to "trade down" to lower-cost chains. On the positive side, the lodging industry has shown a willingness to maintain average daily rates (ADR) to this point in the downturn.
Comerica (CMA) Mortgage Loan Exposure By Neena Mishra Dec 31, 2007 In view of CMA's heavy exposure to the Commercial Real Estate loans, we expect to see higher loan losses in the coming quarters. EDS (EDS) Trends Working Against It By Steve Biggs Dec 28, 2007 With much of the easy efficiency gains already taken, future growth will be harder to come by as contract signings have slowed. CVS Caremark (CVS) Risks Lie Ahead By Steven Ralston Dec 27, 2007 There is substantial operational risk concerning the integration of the four significant acquisitions that were closed last year. National City (NCC) Expect Writedowns By Neena Mishra Dec 26, 2007 We are reiterating our Sell rating on the shares and are reducing our six-month target price target to $14.00 per share. Alcon, Inc. (ACL) Valuation Downgrade By Jason Napodano Dec 24, 2007 We've become concerned about pipeline setbacks and the premium at which the stock currently trades. H&R Block (HRB) Numerous Issues By Sean P. Smith Dec 21, 2007 Many uncertainties remain, both resulting from the deterioration in the mortgage market and related to the company's core tax business. Palm, Inc. (PALM) Falling Behind By Steve Biggs Dec 20, 2007 We believe that the company currently lags competitors with its dated product offering. Alpharma (ALO) Under Pressure By Jason Napodano Dec 19, 2007 We believe that the shares will remain under pressure over the coming quarters as the company works on maintaining Kadian growth. Pfizer (PFE) Not Impressive Outlook By Jason Napodano Dec 18, 2007 Pfizer's top- and bottom-line growth prospects beyond over the next few years do not look encouraging. Amylin Pharma (AMLN) Not Worth Risk By Jason Napodano Dec 17, 2007 The stock is trading at well above the peer-group, and it assumes LAR posts sales over $1.5 billion. SLM Corp. (SLM) The Deal is Off By Neena Mishra Dec 14, 2007 SLM announced that the buyer group led by J.C. Flowers does not wish to pursue the acquisition deal now. H&R Block (HRB) Too Many Questions By Sean P. Smith Dec 13, 2007 Significant uncertainties remain with respect to the impact of the company's decision to shut down its Option One mortgage business. Avici Systems (AVCI) Growth Too Slow By Steve Biggs Dec 12, 2007 We maintain a Sell rating on the shares and lower our six month price target to $6.50. Altria Group (MO) Litigation Concerns By Steven Ralston Dec 11, 2007 Several large punitive damage awards have been upheld by appellate courts, especially the $50 million judgment paid out in the Boeken case. Gander Mountain (GMTN) Softer Market By Rob Plaza Dec 10, 2007 We are concerned with the difficult consumer spending environment as well as Gander Mountain?s soft sales trends. Avici Systems (AVCI) Turnaround in Distance By Steve Biggs Dec 07, 2007 Given the early stages that Soapstone is in, we believe a call option would still be worth very little. Cost Plus (CPWM) Sluggish Market By Rob Plaza Dec 06, 2007 We continue to believe that the company's turnaround efforts will fail to gain traction because of the difficult headwinds. Ness Technologies (NSTC) Very Small Fish By Steve Biggs Dec 05, 2007 Outside the Israeli government market, the company faces intense competition from established players. Embarq (EQ) Struggling with Old Market By David Weissman Dec 04, 2007 The local phone business in North America has significant challenges ahead as local access lines continue to decline and customers transition to alternative solutions. Post Properties (PPS) Overvalued on Rumor By Greg Sukenik Dec 03, 2007 Despite a sector wide sell off over the past six months, Post still trades at an inflated valuation due to persistent buyout rumors. H&R Block (HRB) Mired in Mortgages? By Sean P. Smith Nov 30, 2007 Significant uncertainties remain with respect to the pending disposal of the company?s Option One mortgage business. Cost Plus (CPWM) Increasing Debt By Rob Plaza Nov 29, 2007 We believe the company should tighten its belt, stop expanding, and rationalize its business. Hibbett Sports (HIBB) Ripe for Contraction By Rob Plaza Nov 28, 2007 We do not expect Hibbett?s weak sales trends or contracting profit margins to improve in the short term. Dillard's (DDS) Difficult Environment By Rob Plaza Nov 27, 2007 With little chance of a takeover, DDS shares reflect the company's deteriorating fundamentals. Washington Mutual (WM) Myriad Problems By Eric Rothmann Nov 26, 2007 Our pessimistic view of WM's earnings over the next year comes from several areas. Atmel Corp. (ATML) Questions Abound By Abdul Saleh Nov 21, 2007 There is ongoing concern over pricing pressures in its memory and ASIC businesses and lack of specifics about its restructuring programs and potential benefits. ChoicePoint (CPS) Mortgage Exposure By Steve Biggs Nov 20, 2007 The company faces declining revenues from its mortgage business that will likely persist for the next few quarters. Electronic Data Systems (EDS) ? IT Slowdown By Steve Biggs Nov 19, 2007 We believe there are several major IT trends working against the traditional outsourcing model. Neurochem (NRMX) ? Rocky Road Ahead By Jason Napodano Nov 16, 2007 With no partnerships for Alzhemed and a paltry $70 million in cash, we expect difficult times for the company going forward. Trimeris, Inc. (TRMS) ? Low Visibility By Grant Zeng Nov 15, 2007 We are concerned about the decline in the U.S. sales of Fuzeon, and the recent collaboration amendment with Roche. MannKind Corp. (MNKD) ? Risks Abound By Grant Zeng Nov 14, 2007 The company has been unable to find a partner for Technosphere, and competition is fierce in this field. TIM Participa??es (TSU) ? Underperforming By Claudio Freitas Nov 13, 2007 Third quarter results were disappointing, and the less benign Brazilian monetary policy is a source of concern. Quilmes Industrial (LQU) ? In Limbo By Steven Ralston Nov 12, 2007 An insufficient amount of shares were tendered in the proposed AmBev buyout, and the offer was withdrawn. Ness Technologies (NSTC) ? Tough Market By Steve Biggs Nov 09, 2007 Our fears that it would miss full-year results are being realized, and we believe that there are better opportunities available to investors. 3D Systems (TDSC) ? High Risks Remain By Steve Biggs Nov 08, 2007 The company still missed consensus expectations for the third quarter, and has not issued any guidance. Highwoods Properties (HIW) - Difficult Rent Growth By Greg Sukenik Nov 07, 2007 Many of the company's markets are still plagued by high vacancies, which makes rent growth difficult. Eli Lilly (LLY) ? Pipeline Issues By Jason Napodano Nov 06, 2007 We believe the recent pipeline setbacks and lack of clarity surrounding prasugrel will limit the upside to the stock. CONMED Corp. (CNMD) ? Revenue Miss By Gregory Aurand Nov 05, 2007 The company missed our Q3 revenue expectations, and delayed Q3 operating room installations affecting Arthroscopy will likely hit in Q4. Crocs, Inc. (CROX) ? Huge Margins in the Past By Rob Plaza Nov 02, 2007 When a growth company like Crocs? growth is slowing, the market reassesses what it is willing to pay for slower growth going forward. Aventine, Inc. (AVR) ? Negative Trends By Matthew Thurmond Nov 01, 2007 Based on near-term headwinds, we have lowered our target price to $10 from $15 previously. Whole Foods Market (WFMI) ? Far Overvalued By Rob Plaza Oct 31, 2007 We continue to believe that Whole Foods? future growth will be less profitable than in the past. Supertex (SUPX) ? Disappointing Guidance By Abdul Saleh Oct 30, 2007 The company indicated that there could be a short-term pause in the ramp up of the company?s LED driver sales. Liberty Property Trust (LRY) ? Exposed to Risks By Greg Sukenik Oct 29, 2007 The company has a large development pipeline that is only 41% pre-leased, which poses a real risk if the economy softens in 2008. UAL Corporation (UAUA) ? Lofty Valuation By Ann Heffron Oct 26, 2007 Shares are now trading at a substantial premium to the industry, which we do not feel is justified by UAL?s fundamental outlook. Biogen Idec (BIIB) ? Don?t Wait for Buyout By Jason Napodano Oct 25, 2007 With the stock up 75% in the past year, upside beyond the current price seems limited ? even IF a sale eventually goes through. Overstock.com (OSTK) ? Grossly Overvalued By Rob Plaza Oct 24, 2007 We would use the recent gains in the company?s stock price to exit positions. Avici Systems (AVCI ) ? Visibility Concerns By Steve Biggs Oct 23, 2007 Six months from now, investors will likely be concerned about a lack of visibility into revenue growth from software. Navigant Consulting (NCI) ? Prove Themselves First By Sean P. Smith Oct 22, 2007 Until we begin to see the benefits of restructuring activities, we would not recommend that investors initiate new positions in shares. JC Penney (JCP) ? Consumer Taking a Hit By Rob Plaza Oct 19, 2007 The company?s recent negative preannouncement demonstrates that weak consumer spending is already hurting JC Penney?s results. UTStarcom (UTSI) ? Delayed Reports Weak By David Weissman Oct 18, 2007 UTStarcom?s financials have not been impressive as fiscal 2006 revenue declined significantly year-over-year. P?o de A??car (CBD) ? Climate Weakening By Claudio Freitas Oct 17, 2007 Some performances remain weak, and the Brazilian Central Bank should stop cutting basic rates in the very short term. 3Com Corp. (COMS) ? Buyout Risks Emerge By Steve Biggs Oct 16, 2007 There is a risk that the transaction is blocked by the U.S. government due to security concerns over Huawei?s affiliation with the Chinese government. Hewitt Associates (HEW) ? Looks Overvalued By Steven Ralston Oct 15, 2007 The stock appears overvalued and was artificially supported by the company?s modified "Dutch Auction" tender offer. Centennial Comm. (CYCL) ? Lackluster Sales By David Weissman Oct 12, 2007 Revenue performance has been lackluster, following slow subscriber growth and lower roaming traffic. Altria Group (MO) - International Troubles By Steven Ralston Oct 11, 2007 Potential negative litigation is expected in Canada, and weak volume in Germany remains a concern. Palm, Inc. (PALM) ? Struggling to Keep Up By Steve Biggs Oct 10, 2007 Although Palm has a major platform redevelopment in the works, we believe that the company currently lags competitors. Kimberly-Clark (KMB) ? Difficulty Breaking Free By Steven Ralston Oct 09, 2007 Despite progress on the company?s three cost savings programs, rising raw material costs, weak European operations, and competitive pressures are constraining earnings growth. P?o de A??car (CBD) ? Weakening Results By Claudio Freitas Oct 08, 2007 The company reported weaker-than-expected results for the first and second quarters 2007, including lower margins and disappointing net income. King Pharmaceuticals (KG) ? Generic Threat By Jason Napodano Oct 05, 2007 We believe that generic threat and mounting competition will continue to hinder both top- and bottom-line growth going forward. National City (NCC) ? Bleaker Outlook By Neena Mishra Oct 04, 2007 Based on the updated financial guidance, we have lowered our FY07 and FY08 estimates. Palm, Inc. (PALM) ? Tough Competition By Steve Biggs Oct 03, 2007 Until we see an improved offering and its new platform scheduled to be released by the end of calendar 2008, we recommend investors avoid the stock. Altria Group (MO) ? Litigation & Weak Volume By Steven Ralston Oct 02, 2007 Potential negative litigation is expected in Canada, and weak volume in Germany remains a concern. Palm, Inc. (PALM) ? Slim Hopes for Foleo By Steve Biggs Oct 01, 2007 We are skeptical on the chances that Foleo will be successful as it resembles a lap top computer, which many business travelers already carry. King Pharmaceuticals (KG) ? Pipeline Problems By Jason Napodano Sep 28, 2007 Most of the company?s key products are either facing increased competition or generic threat. Auxilium Pharma (AUXL) ? Promo Termination By Grant Zeng Sep 27, 2007 We are concerned that the termination of Auxilium?s co-promotion agreement for Testim could have a negative impact on the product?s growth prospects. National City (NCC) ? Mortgage Exposure By Neena Mishra Sep 26, 2007 The company now expects the after-tax Mortgage Banking loss to be in the higher end of the $130-$160 million range. 3Com Corporation (COMS) ? Low Liquidity By Steve Biggs Sep 25, 2007 The company?s cash position is significantly impaired, and it planned to alleviate this condition through the IPO for TippingPoint, which has been delayed. Palm, Inc. (PALM) ? New Product Difficulties By Jason Napodano Sep 24, 2007 Revenue guidance for Q1 was below consensus, and margins are falling due to the release of its Foleo. Pfizer, Inc. (PFE) ? Weak Pipeline By Jason Napodano Sep 21, 2007 Pfizer?s top- and bottom-line growth prospects beyond over the next few years do not look encouraging. Builders FirstSource (BLDR) ? Tough Industry By Rob Plaza Sep 20, 2007 The company continues to face an uphill battle in an extremely difficult housing industry. Ness Technologies (NSTC) - Risks Too High By Steve Biggs Sep 19, 2007 Inconsistent results and risks associated with back-end loaded year justify sell recommendation. Align Technologies (ALGN) ? Not Straightening Out By Gregory Aurand Sep 18, 2007 It remains unclear how much of the market ALGN can continue to grow consistently, especially given increased reliance on GP utilization. MannKind Corp. (MNKD) ? High Cash Burn Rate By Grant Zeng Sep 17, 2007 Competition is fierce in this field, commercialization is still at least three years away and the company is burning cash at too high a rate. Altria Group (MO) ? Harmful Litigation By Steven Ralston Sep 14, 2007 Several large punitive damage awards have been upheld by appellate courts, especially the $50 million judgment paid out in the Boeken case. CONMED (CNMD) ? Unlikely Growth Scenario By Gregory Aurand Sep 13, 2007 Given the soft top-line outlook, we aren?t sure the company can continue to generate solid EPS growth through just margin improvement. Advanced Medical Optics (EYE) - Increased Uncertainty By Tom Park Sep 12, 2007 Advanced Medical Optics (EYE) - Increased Uncertainty 3D Systems (TDSC) ? Intense Competition By Steve Biggs Sep 11, 2007 Although results may begin to show the benefits of restructuring efforts later in 2008, we believe the stock price has gotten ahead of itself. Dillard?s (DDS) ? Retailer Takes Its Lumps By Rob Plaza Sep 10, 2007 We believe weak industry trends as well as poor fundamentals will continue to pressure Dillard?s results. UAL Corp. (UAUA) ? Highly Overvalued By Ann Heffron Sep 07, 2007 Shares are now trading at a substantial premium to the industry, which we do not feel is justified by UAL?s fundamental outlook. Cost Plus (CPWM) ? Financing with More Debt By Rob Plaza Sep 06, 2007 The company?s balance sheet was already on shaky ground, and increased leverage will put additional pressure on the company?s declining profit margins. Post Properties (PPS) ? Buyout Less Likely By Greg Sukenik Sep 05, 2007 With the current credit squeeze, large REIT buyouts could be a thing of the past, at least in the near term. H&R Block (HRB) ? Mortgage Exposure By Sean P. Smith Sep 04, 2007 Significant uncertainties remain with respect to the pending disposal of the company?s Option One mortgage business. Atmel Corp. (ATML) ? Risks Abound By Abdul Saleh Aug 31, 2007 The memory and digital processor markets remain highly competitive and are subject to the dynamics of the commodity market. Jones Soda Company (JSDA) ? Still Overvalued By Steven Ralston Aug 30, 2007 Given the stock?s high valuation and management?s pared revenue guidance, the stock is downgraded to a Sell. Embraer Air (ERJ) ? Infrastructure Problems By Claudio Freitas Aug 29, 2007 The complete failure of the Brazilian airports? infrastructure will certainly be a problem for the company?s local sales. Kimberly-Clark (KMB) ? Pressures Abound By Steven Ralston Aug 28, 2007 Rising raw material costs, weak European operations, and competitive pressures are constraining earnings growth. Supertex (SUPX) ? Lackluster Outlook By Abdul Saleh Aug 27, 2007 We have adjusted Q3 and fiscal 2008 revenues down, reflecting management?s lack of enthusiasm. Avnet (AVT) - No Near-Term Catalysts By Abdul Saleh Aug 24, 2007 In the absence of a catalyst in the near-tem and concerns related to the high level of debt, we are maintaining our Sell rating. Palm, Inc. (PALM) ? Major Competition By Steve Biggs Aug 23, 2007 Without a meaningful upgrade since the Treo 650 was released in 2004, we believe the company will struggle to keep pace with competing products. Jones Soda Co. (JSDA) ? Lowering Expectations By Steven Ralston Aug 22, 2007 Management lowered revenue growth outlook to the range of 30% to 40% from the earlier estimate in the 50%-range. Embraer Air (ERJ) ? Lackluster Results By Claudio Freitas Aug 21, 2007 The company's first and second quarter results were disappointing. We remain concerned over the strength of the Brazilian real, and its effect on the company's competitiveness. King Pharmaceuticals (KG) ? Mounting Competition By Jason Napodano Aug 20, 2007 We believe that generic threat and mounting competition will continue to hinder both top- and bottom-line growth going forward. P?o de A??car (CBD) ? Competition Increases By Claudio Freitas Aug 17, 2007 The aggressive expansion of Wal-Mart in Brazil remains a concern, and we are reducing our 2007 and 2008 earnings estimates on CBD. 3Com (COMS) ? Low Cash Flow, High Competition By Steve Biggs Aug 16, 2007 3Com?s net cash position has fallen to $0.56 per share from $2.42 per share, which had earlier supported the stock?s valuation. Centennial Communications (CYCL) ? Myriad Delays By David Weissman Aug 15, 2007 We continue to await indications of improved o |
