BLUD Under Some Pressure

Immucor, Inc. (BLUD) continues to progress in the development of another version of the Galileo. The company's strong earnings growth has been driven by double-digit sales escalation, gross margin expansion, and operating cost control. The additional worldwide placements of Galileo continue to help drive Immucor's growth. Instrument placements are expected to be further driven by the successful launch of Echo.

The company is under pressure from the Echo launch but gross margins are expected to regain momentum from the eventual growth in reagent sales, manufacturing efficiencies, and price increases. Although dilutive during development of the technology, the pending acquisition of BioArray Solutions is expected to transform BLUD into a leader in molecular diagnostic systems for blood transfusions.

At its current price of $30.22 per share, BLUD is trading at roughly 32x our fiscal 2009 earnings estimate of $0.95 per share, which is at a premium to the group multiple of roughly 28x. Although continuing to grow, revenue may fall below expectations due to lower than anticipated sales from the customer loyalty program and Europe. In addition to revenue growth, gross margin expansion and operating cost control have been driving earnings higher.

The Federal Trade Commission inquiry announced in the second quarter that was formalized on July 11 into a Civil Investigative Demand and the significant dilutive impact over the next several years after acquiring BioArray Solutions may continue to place some downward pressure on the stock price. We believe the stock is fairly valued at roughly 37x fiscal 2009 EPS estimate. Our target price moves to $35.

Patni Reliant on U.S. Market

Patni Computer Systems, Ltd. (PTI) reported in-line revenues and earnings in the second quarter of 2008, aided by higher other income. The company also benefited from a lower-than-expected effective tax rate in the quarter.

Partnership with Trillium Software and appointment of a Senior Vice President of Manufacturing Services will serve the company well in times of a possible slowdown of the U.S. economy, India's biggest software exports destination. Also, introduction of Enablement Services to help independent software vendors make the transition to an Oracle-based 'Software as a Service' platform will help generate additional revenues.

We are lowering our earnings estimates for the rest of 2008 while fixing target estimate for the 2008 at $1.23 per ADR compared to our earlier estimate of $1.39.