Target $70 on China Life Shares
China Life (LFC) announced disappointing financial results for the first quarter of 2008 due to a big decline in China's stock market. It is clear that China Life is the market leader in China's life insurance industry, where opportunities are significant.
Although China Life still faces growing competition and volatile capital market, and has not successfully completed its conversion to higher margin products, its current valuation does not fully reflect its growth prospects, in our view. Therefore, we maintain our Buy recommendation on China Life shares.
Based on our estimate for fiscal year 2008 earnings per ADS, the company is trading at 30.0x, which is much higher than the industry mean. Based on our estimate for fiscal year 2009 earnings per ADS, the company is trading at 28.1x, which is still much higher than the industry mean. Using a P/E multiple of roughly 31.3x our fiscal year 2009 earnings per ADS estimate yields a target price of $70.00, which we believe reflects the company's prospects.
Be Resourceful with Newfield
Strong volume gains drove Newfield Exploration's (NFX) first-quarter 2008 out-performance. Production of 55.1 Bcfe was above the upper end of the company's guidance range, driven by record volumes from the Woodford Shale and Monument Butte plays.
Volumes are expected to grow approximately 20% this year, aided by contributions from development projects currently underway. We are reiterating our Buy rating on the stock for its production-growth prospects and diversified asset base. We are also raising our estimates and price objective.
Our continued positive view of Newfield shares reflects the company's steady shift towards domestic long-lived resource plays and positive production-growth profile. Despite some recent strength, inline with the rest of the group, the stock is still cheap and offers upside from current levels. Our new $72 price objective, raised from $55 before, is based on 6.0x EV/EBITDA ratio (2008) and reflects our belief that there is substantial valuation upside in the stock.
Buy Small-Cap OPNET to $14
OPNET (OPNT) posted results in-line with guidance for the fourth quarter of fiscal 2008. Although slightly below our expectations, we are encouraged that new license revenue has grown sequentially for the third consecutive quarter and its focus on growing the pipeline appears to be bearing fruit.
On the negative side, economic uncertainty appears to be lengthening the sales cycle, though we believe the company is well positioned for the long-term. We reiterate our Buy rating on OPNT with a price target of $14.00. With a P/S multiple of 1.7x current year estimates and 1.5x FY 2010 estimates, OPNET has the one of the lowest multiples of its peer group.
Although we believe investors will likely be somewhat restrained until the company demonstrates some operating leverage with its business model by growing new license revenue and working through dilution from Network Physics, we do believe that the stock should approach the mean of its peer group and is protected on the downside with $3.87 in cash and investments per share.
