RAS Weathering Crisis

An update has just come out today on RAIT Financial Trust (RAS), in which Zacks real estate investment trust [REIT] analyst Greg Sukenik is restating his Hold rating on the company.  We excerpted the following details:

'As expected, RAS reported a large asset impairment charge in the 3rd quarter related to its trust preferred securities (TruPS) portfolio. We expect more impairments in the coming quarters due to bad loans. The dividend, while much lower than earlier this year, appears to be safe for now at $0.46 per share. Adjusted EPS for the 3rd quarter, excluding impairments was $0.54.

'The stock has been in a tailspin, dropping some from nearly $40 per share in the beginning of 2007. The dividend was cut in half this year, and this could happen again in 2008. The company currently trades at 0.79x BV. We estimate that the company could take impairments of up to $200 million more due to bad loans next quarter. In the current environment where a major part of the company's business has vanished, namely TruPS, an investment in RAS is extremely risky and the company could follow many of its mortgage REIT peers and be headed for bankruptcy. RAS has been all but shut off from debt markets and the company will try to redeploy cash in higher yielding investments as loans are paid off.

'If the company can weather the current liquidity crisis, there could be some upside in the shares, although we do not expect any price movement in the near term as more bad news comes from the residential mortgage business. We are maintaining our Hold rating, due to the high yield and the company's stable cash position. However, shares of RAS pose a great risk, and if more bad news comes to light, margin calls could force the company into bankruptcy. For now, we are setting our price target at $9 per share or 4.0x 2007 EPS estimates and 0.80x P/BV (assuming $200 million more of impairments).'

Shallow ALXA Pipeline

The following excerpts explain why Zacks senior pharmaceutical industry analyst Jason Napodano, CFA remains neutral on Alexza Pharmaceuticals, Inc. (ALXA), the biomedical company:

'Alexza Pharmaceuticals, Inc. focuses on the development and commercialization of proprietary products for the treatment of acute and intermittent conditions. We are enthusiastic on the company's proprietary novel Staccato system that reformulates oral or injectable small molecule compounds into an inhalable aerosol. Alexza has five product candidates in clinical stage trials; including leading candidate AZ-001 for migraine headache pain relief. Recent data on AZ-001 and AZ-004 lead us to believe the Staccato system is both safe and highly effective.

'The only clinical stage candidate we expect to be on the market before 2010 is AZ-001. The company could be in position to file with AZ-004 in 2010. However, it is generic Imitrex that has us concerned. Once Imitrex (Sumatriptan) loses exclusivity the market will be flooded with cheaper alternatives. Nevertheless, commercialization of AZ-001 could offer a $500 million potential given the large and underserved migraine headache market.

'Other product candidates offer significantly less potential in our view. AZ-003 will enter a highly competitive fentanyl market competing against several other re-formulated products. Several specialty pharmaceutical companies are major players in this area. We are waiting to see just how an inhaled fentanyl product will fit into this market. Both AZ-002 and AZ-004 could offer decent potential in the anti-anxiety market but the data is far too early-stage to proclaim either candidate a winner. The same can be said for AZ-104 and AZ-007.

'The company exited the quarter 2007 with $80.4 million in cash and investments. Symphony Allegros held another $42.2 million in cash. Funding operations doesn't seem to be an issue for now. Alexza probably has enough cash to fund its development programs through 2008. At this time we think investors can be patient with Alexza. In the meantime, our price target is $9 and our rating is Hold.'

CRAI Still a Buy Pre-Earnings

A Buy recommendation has recently been issued to business services provider CRA International (CRAI) by Zacks services industry analyst Sean P. Smith. Here's what his latest update had to say:

'We maintain our Buy rating for CRA International. We expect the company to continue to benefit from strong demand for its services, both domestically and in international markets. Although we lowered our '07 earnings estimate for the company following the release of Q3 results, we increased our '08 estimate based on strong top-line growth, the expectation for improved margins going forward, and a lower share count.

'Net income of $8.6 million was down 1.5% compared to the year-ago period, reflecting the impact of increased expenses. Reported diluted EPS for the quarter was $0.72, versus $0.71 reported in the year ago period, reflecting the impact of a lower share count. The results were $0.09 below our estimate, again reflecting the impact of increased expenses.

'We anticipate that the company will generate earnings growth in excess of 25% in fiscal year 2008. Using a P/E ratio, the shares of CRA International are currently trading at a discount to the peer group average. Our six-month target price is $56, which implies a P/E multiple of approximately 18x our 2008 EPS estimate. The company will report Q4 results in early January, and we will update our outlook at that time.'

Wait & Watch CVTX

The following excerpts explain why Zacks senior pharmaceutical analyst Jason Napodano, CFA remains neutral on CV Therapeutics, Inc. (CVTX), the biopharmaceutical company:

'Headquartered in Palo Alto, CA, CV Therapeutics, Inc., or CVT, is a biopharmaceutical company focused on applying molecular cardiology to the discovery, development and commercialization of novel, small molecule drugs for the treatment of cardiovascular diseases. CVT announced in early March 2007 that the MERLIN-TIMI-36 trial failed to achieve its primary end point in acute coronary syndrome (ACS). The potential still exists to expand the label from second line to first line angina, but sales will probably never reach blockbuster levels.

'The street is pretty split on CVT right now. We are in the moderately positive camp, believing that Ranexa will eventually pick up steam after the label expansion(s). We remind investors, there are two separate applications here -- one for first-line angina and another for use in diabetics with coronary disease. Outside of Ranexa, we expect full approval of regadenoson in March 2008. This will bring a $12 million milestone from Astellas along with the potential to start collecting royalties on regadenoson and another product immediately.