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Posted Thu Dec 04, 11:25 am ET
by Jon Kolb
Sempra Energy (SRE) is a southern California-based energy services holding company involved in the sale, distribution, storage, and transportation of natural gas.
Looking ahead, from a base of stable earnings , CPUC [California Public Utilities Commission] approval of general rate cases, operational REX-West, steady progress at its LNG [liquified natural gas] terminals, the recent acquisition of EnergySouth and announcement of its first solar power project, collectively support the bullish outlook for SRE. However, higher borrowing costs, tightening credit markets, uncertainty of commodity markets, and low natural gas prices will affect the future performance of the company.
Given a discount in P/E multiples, we maintain our BUY recommendation on SRE with a six-month target price of $48.00. Price appreciation to our near-term valuation target coupled with a sustainable and secure increased quarterly dividend of $0.35 per share based on low projected earnings payouts represents annualized total return potential of 26.7%.
Read the full analyst report on SRE
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Posted Thu Dec 04, 11:12 am ET
by Jon Kolb
Headquartered in Pennsylvania, Allegheny Energy, Inc. (AYE) is engaged in both regulated electricity and natural gas distribution utility operations, as well as in the unregulated wholesale energy markets.
Going forward, AYE's positive investment factors include increased power market prices, higher generation rates in Pennsylvania and Maryland, and recovery of purchased power expense in Virginia. These positive factors are partially offset by higher coal costs and a reduction in plant output.
Looking ahead, we expect that the company's regulated delivery utility business will provide steady earnings growth. Accordingly, we maintain a BUY recommendation on AYE common stock with a six-month target price of $37.50.
Read the full analyst report on AYE
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Posted Thu Dec 04, 10:59 am ET
by Ann Northrop, CFA
Morton's Restaurants Group (MRT) was founded in 1978 in downtown Chicago by Arnie Morton, Playboy's former director of food and beverage, and by Klaus Fritsch. Since then, Morton's has grown to be the world's largest company-owned upscale steakhouse chain, with 80 Morton's Steakhouses in 68 major cities across the U.S. and Puerto Rico, along with five international locations Toronto, Vancouver, Hong Kong, Macau, and Singapore.
Morton's reputation for serving world-class food and hospitality will remain strong and drive sales longer-term. Indeed, when the economy improves in the late 2009-2010 time frame, Morton's can grow earnings at a CAGR [compound annual growth rate] of 10%-13% by adding 4 to 7 new units per year (5%-8% growth) and growing same-store sales by 3%-5% per year through incremental Bar 12-21 revenue, increased boardroom utilization, and modest price increases.
Currently, however, the recession is eroding traffic and earnings. We've noted in the past that Morton's extreme reliance on corporate spending (80% of diners are on expense accounts), and moderate financial leverage will work in reverse as the economy slows down.
With operating cash flow declining into the red, MRT has used debt (42% of capital) to open new units, refurbish others and, incredibly, buy back stock. We expect a continued rise in leverage, fueled by negative free cash flow.
Read the full analyst report on MRT
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Posted Thu Dec 04, 10:32 am ET
by Steven Ralston, CFA
CVS Caremark Corporation (CVS) is one of the leaders in the domestic drug store industry and the pharmacy services industry.
Management embarked on an aggressive expansion strategy, including the merger of equals with Caremark. There is substantial operational risk concerning the integration of the five significant acquisitions that were closed during the last two years.
Also, generic drug introductions and Wal-Mart's (WMT) entry into the generic drug industry are negatively impacting the profitability of the drug store industry, including CVS Caremark. Therefore, the stock is rated a Hold.
Read the full analyst report on CVS
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Posted Thu Dec 04, 09:57 am ET
by David Weissman, CFA
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.
Read the full analyst report on NT
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Posted Thu Dec 04, 09:10 am ET
by Sheraz Mian
Halliburton Company (HAL) is one of the largest oilfield service providers in the world, offering a variety of equipment, maintenance, and engineering and construction services to the energy, industrial and government sectors. In early April 2007, Halliburton completed the separation of Kellogg Brown & Root (KBR). The transaction enabled Halliburton to become a pure-play energy services company.
Continued commodity and credit-market issues are weighing on the oilfield service group in general and Halliburton shares in particular. The stock has underperformed its large-cap peers in recent days, primarily due to its perceived over-exposure to domestic natural gas prices through its dominant pressure pumping franchise.
But we think that the market's reaction has been misplaced and excessive. Halliburton is much more than a North American pressure pumping player -- it is a top three global player in each of the product/service market it competes in. Also, the company remains in excellent financial health.
Read the full analyst report on HAL
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Posted Wed Dec 03, 04:37 pm ET
by Ann Heffron, CFA
We are continuing our Hold on DryShips Inc. (DRYS), but cutting our target price to $4. In 2008's third quarter, DRYS posted diluted EPS before nonrecurring items of $3.53, up 49% year over year, but below our estimate due to higher-than-expected expense growth.
Revenues increased 126% year over year to $317 million, largely due to a 41% rise in TCE [time charter equivalent] rates to $63,965 per day (from $45,525 per day) and a 19% increase in voyage days to 3,465 days, as well as the addition of revenues from the acquisition of Ocean Rigs ASA, an ultra deep water (UDW) oil driller.
However, dry bulk rates have plummeted (the Baltic Dry Index is at a 22-year low), the company is issuing 19.4 million shares for the purchase of 9 Capesize drybulk carriers, and selling up to an additional 25 million shares to raise capital.
Read the full analyst report on DRYS
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Posted Wed Dec 03, 04:11 pm ET
by Ken Nagy, CFA
WESCO International, Inc. (WCC) is one of the largest distributors of electrical products in the U.S. Both revenue and EPS exceeded consensus estimates in the last quarter. All the end markets continue to look challenging in 2008, and 2009 is likely to be worse.
However, management initiatives could limit the downward pressure. We expect revenue to grow less than 3% in 2008, after four years of double-digit growth.
We are reiterating our Hold rating on WCC shares. While management's experience and initiatives should ensure slightly higher growth rates than the industry, it will have to balance the cost of these initiatives versus revenue growth in order to minimize the margin pressure.
Sejuti Benerjea contributed to this report.
Read the full analyst report on WCC
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Posted Wed Dec 03, 02:43 pm ET
by Ann Northrop, CFA
We maintain our Sell rating on Radio One, Inc. (ROIAK). 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.
Founded in 1980 and based in Lanham, Maryland, Radio One, Inc. is the 7th largest radio broadcasting company in the U.S, owning and/or operating 53 radio stations in 16 of the nation's largest markets.
Read the full analyst report on ROIAK
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Posted Wed Dec 03, 02:10 pm ET
by Paul Raman, CFA
Tenneco, Inc. (TEN) headquartered in Lake Forest, Illinois, sells its products under brands including Monroe, Rancho, Clevite Elastomers, and Fric Rot ride control products and Walker, Fonos and Gillet emission control products. The company operates 80 manufacturing plants and 15 engineering facilities worldwide.
Tenneco is witnessing revenue improvements and has been successful in its cost reduction efforts and restructuring activities. The company holds a leading position in nearly every product category it offers. Moreover, diversification has proved to be a major positive for the company. The company projects that it will achieve an average compounded annual original equipment (OE) revenue growth rate of 11%-13% between 2008 and 2012.
However, elevated commodity costs, oil prices, and sizable production cuts at General Motors Corporation (GM) and Ford Motor Company (F) lead us to rate the stock a Hold. We set a six-month target price of $2.50.
Read the full analyst report on TEN
Read the full analyst report on GM
Read the full analyst report on F
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Recent PostsRide Utilities with Sempra Energy
Thu Dec 04, 11:25 am ET Say AYE to This Utility Play
Thu Dec 04, 11:12 am ET Morton's Chewing Thru Toughness
Thu Dec 04, 10:59 am ET CVS Looks to Firm Up Expansion
Thu Dec 04, 10:32 am ET Nortel Networks Not Sounding Good
Thu Dec 04, 09:57 am ET Halliburton's Price is a Steal
Thu Dec 04, 09:10 am ET DryShips Target Cut, Stays Afloat
Wed Dec 03, 04:37 pm ET WESCO Holding Its Position
Wed Dec 03, 04:11 pm ET Radio One to Fall Even Further
Wed Dec 03, 02:43 pm ET Tenneco Still Under Big 3 Shadow
Wed Dec 03, 02:10 pm ET
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