Overseas Shipholding Group
We are maintaining our Sell recommendation on Overseas Shipholding Group, Inc. (<a href=http://www.zacks.com/stock/quote/osg>OSG</a>), 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. <p> 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. <p> 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.ENSCO International (ESV)
The recent strength in crude oil prices has improved the outlook for a cyclical recovery. Historically, jackup drillers like ENSCO (<a href=http://www.zacks.com/stock/quote/esv>ESV</a>) have enjoyed strong early-cycle leverage, a trend that we believe will play out this time as well. <p> While the near-term situation is expected to remain weak, with rig oversupply and soft demand weighing on dayrates, the medium to long-term outlook remains favorable. ENSCO enjoys strong leverage to this outlook given its fleet of premium jackup rigs, an exceptionally strong balance sheet, and growing deepwater exposure. <p> Our new $45 price objective, raised from $40 before, results from 2009 P/E and EV/EBITDA multiples of 7.4x and 4.3x, respectively, both well within historical trading ranges.Metals & Mining Industry
Prices have peaked due to the record commodities run-up and also by slowing economies. We do, however, have Buys on DRD Gold and Harmony Gold.StarInvest Completes the Acquisition of EXX.COM
MIDLAND, TX--(Marketwire - May 29, 2009) - StarInvest Group, Inc (
EXX is a front end financial system with applications for risk management, regulatory compliance, real time information for risk evaluation, and quotations services. EXX's CEO James Davico stated: "We are excited about the prospects of expanding EXX's business plan worldwide. We believe the synergy between the companies will be highly beneficial for our shareholders."
CMS: Back from bankruptcy
"The road back from near bankruptcy in 2002 for CMS Energy (NYSE: CMS) has been a rocky one," says Roger Conrad, Here's an update from his specialty service, The Utility Forecaster.
"From Three Mile Island to the Enron meltdown, utilities have always recovered from disaster by cutting debt and operating risk and repairing regulatory relations.
"Last fall, the shares of CMS Energy -- our latest featured growth stock -- plunged from high teens to single digits on recession worries in embattled Michigan.
"Ironically, CMS’ underlying business is healthier than at any time since the late 1990s. Fueled by regulator-sanctioned infrastructure investment, 2008 earnings beat targets and stayed on track for 6 to 8% annual growth. The company also slashed debt interest by 10.5% and boosted its distribution 38.9%.
"An upcoming rate case in Michigan will test utility/regulator relations. CMS has asked for $215 million (11%) to finance new power lines, cut pollution and install advanced. Under state law, the boost went into effect in May.
"Regulators will likely trim the request in their final ruling, mandatory by November 2009. But they’ve consistently supported utility spending, including a planned $6.3 billion over the next five years.
"And in contrast to neighboring DTE Energy, CMS’ income is only 3% from the auto industry, offset by rising sales to alternative energy manufacturers.
"Despite a 17% jump this year, CMS shares still sell for barely book value and 9.6 times the lowest 2009 Wall Street estimate--hefty risk is already priced in. Buy CMS Energy up to 12 for a potential run to the low 20s over the next 12 to 18 months."
Growth in agriculture
"Our core resource positions -- including agriculture -- have had a great month; my indicators suggests these positions are going much higher," says Larry Edeslon in Real Wealth.
"We continue to see bullish sentiment building up in the agriculture sector.
"Many key commodities — from corn and soybeans to wheat and cotton — are being pressured higher from bad weather conditions and shrinking stockpiles.
"Indeed, the bullish news keeps coming in:
- U.S. farmers are expected to harvest 18% less winter wheat (a two-year low) this year after prices plunged from a record high in February. Bad weather has also damaged crops.
- Corn prices, the biggest U.S. crop, recently rose to a four-month high as wet weather limited planting, which will likely reduce crop yields.
- Sugar prices are rising based on speculation that the global production shortfall will reach a 10-year high.
"In my view, the writing is on the wall: Agricultural commodities are primed to rise and your shares of PowerShares DB Agriculture Fund (NYSE: DBA) -- and exchange traded fund investing throughout the agriculture sector -- stands to benefit."
Rosetta Stone (RST): Will IPO translate to profits?
"The hottest IPO of late has been the offering from language instruction company Rosetta Stone (NYSE: RST)." notes Bill Martin.
In his BullMarket.com, he suggests, "The desire, not to mention need, to learn other languages in a global economy means the company is looking at a potentially huge market." Here's his review of the IPO.
"Shares of Rosetta Stone were priced at $18, which itself was above the anticipated range, but the price surged in the company's first day of trading on April 16th. The stock rose to $32.54 before retreating.
"Rosetta Stone was the first IPO to price above its expected range in almost a year. The appetite for the company's shares was attributed to the fact it is a strong company with an established business model that people could understand.
"The company describes itself as a provider of technology-based language learning solutions. It develops, markets, and sells language programs that consist of software, online services, and audio practice tools primarily under the Rosetta Stone brand. It currently offers self-study courses in 31 languages.
"The company says that approximately 83% of its revenue in 2008 was generated through its direct sales channels, which includes call centers, websites, an institutional sales force and kiosks that have become ubiquitous at airports. It also distributes through select retailers such as Amazon.com, Apple retail stores, Barnes & Noble, and Borders.
"Rosetta Stone grew from $25.4 million in annual sales in 2004, when the company was known as Fairfield Language Technologies, to $209.4 million in 2008, representing a 69% compound annual growth rate.
"The growth was entirely organic, the company said. According to the IPO prospectus, Rosetta Stone earned $13.9 million in 2008, or 82 cents per share.
"While the company is seeking to enlarge its market share in the U.S. through increased advertising and more advanced product offerings, it also views targeting customers outside of the U.S. to be a critical growth objective, since 90% of the $83 billion in worldwide spending on language trading was spent outside of the U.S.
"Investors didn't have to wait long for update results from Rosetta Stone as the company reported its Q1 results on May 11th. Unfortunately, it forecast a loss in the second quarter as a result of stock option expense charges, news that sent the shares tumbling.
"The company's first-quarter results, however, were quite robust as it reported increases in market share, expanded margins, and strong revenue gains. Rosetta Stone said it earned $3.2 million, or 19 cents per share, compared to a year-ago net loss of $432,000, or 23 cents per share, in the year-ago quarter.
"Total sales grew by 41% to $50.3 million, compared to $35.6 million in the prior-year period. As a recent IPO, no Wall Street analysts had established an outlook for the company.
"Looking ahead, management said on earnings conference call that the company would report a loss of between 42 cents to 44 cents a share in the second quarter.
"The loss would be the result of non-cash charges to cover stock option grants to key employees. Excluding the charge, the company expected to earn14-16 cents a share. Revenue was expected to grow sequentially to between $53 million to $55 million.
"The anticipated earnings loss for Q2 aside, which is driven by non-cash items, Rosetta Stone is intriguing as it is a solidly profitable young company.
"Gross margins are huge with over $50 million in revenue offset by only $6.4 million in direct costs; the biggest variable impacting operating income, which was $5.5 million in Q1, is how much management spends on sales and marketing.
"Those expenses rose from $18 million a year ago to $23.6 million in the most-recent quarter. R&D and SG&A costs rose modestly in comparison. Rosetta Stone is still in a growth phase and given it is targeting consumers for the bulk of its revenue, we would expect marketings costs to keep rising, though hopefully on a manageable level.
"The fact the company principally targets consumers represents the greatest risk to its business given consumer caution at present. That said, the desire, not to mention need, to learn other languages in a global economy means the company is looking at a potentially huge market.
"Already profitable from focusing only on the U.S. means Rosetta Stone has a lot of opportunity to enlarge the business. A challenge will be whether it can translate its domestic success overseas.
"Time will tell. Based on recent financial statements, Rosetta Stone is trading at a rich valuation of 29.5x trailing earnings. We've seen not Wall Street estimates as yet for the current year, but we like Rosetta Stone's prospects."
Align Technology (ALGN)
Align Technology (<a href=http://www.zacks.com/stock/quote/algn>ALGN</a>) 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. <p> 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. <p> 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.IBM Corp. (IBM)
As a result of its large non-US revenue base, IBM Corporation (<a href=http://www.zacks.com/stock/quote/ibm>IBM</a>) has been better insulated from the recent weakness in the U.S. economy than many of its peers. IBM's Q109 results indicate its strong position in emerging markets, which should continue to help drive growth. <p> Moreover, the company has focused on driving its bottom line through cost cutting efforts. It re-affirmed EPS guidance for the full year of 2009 and 2010. Although, revenue is not expected to grow by much, we expect margin improvements in 2009. <p> The company's long-term prospects look brighter as it maintains a strong position in the software and services market. We maintain our Buy rating on IBM shares and maintain our price target of $120.00.Cancer Therapeutics Finalizes Definitive Agreement With NanoTherapies, LLC
SALT LAKE CITY, UT--(Marketwire - May 28, 2009) - Cancer Therapeutics, Inc. (