Westell Stays a Hold

Taking a 'wait and watch' approach on shares of small-cap broadband provider Westell Technologies (WSTL) is Zacks senior telecommunications industry analyst David Weissman, CFA.  We excerpted some of the details from his latest report:

'We maintain our Hold recommendation and the same valuation target for Westell Technologies, a leading provider of broadband access products and conferencing services, following the mixed financial results for third quarter (ended December) fiscal 2008. While revenue declined as a result of transitioning a major contract with AT&T (T) (former BellSouth territory), EPS was above our expectation due to ongoing outsourcing and restructuring activities. Consequently, gross margin returned back to a slightly higher level.

'Although the company's financial outlook for the fourth quarter remains flat with the prior reporting period, we do believe that the situation may improve in fiscal 2009 as Westell received two major contracts from AT&T and Verizon (VZ). An announcement of further headcount reduction and the decision to explore strategic alternatives for its Conference services unit may also lead to improved financial prospects in future reporting periods.

'Westell is currently trading at 38.5x to our estimated fiscal 2009 earnings. This is at a significant premium over the S&P 500 average but at a discount to the peer group average. With respect to other selected valuation metrics, the stock is also trading below its peers. Our assessment indicates that earnings volatility will remain at least over the near-term, but we forecast financials to improve by the middle of next year.'

Cash Flow Tight at Eastman Chemical

Zacks senior chemical industry analyst Paul Raman, CFA has maintained his Hold rating on the chemical and plastic manufacturer, Eastman Chemical Company (EMN):

'Eastman has a strong fibers business and solid financials, plus a potential PET restructuring. The company is likely to benefit from its recent focus on the industrial gasification business. On January 25, 2008, Eastman announced that it expects its earnings to more than double in the next five years. The company expects strategic initiatives to double its earnings per share to $10 by 2012.

'The company also expects 10% margins in its performance polymers and specialty plastics segment, where it plans to sell factories in Europe and abandon operations at the South Carolina facility. Eastman expects the segment to contribute $3 per share to earnings per annum. EMN also anticipates its industrial gasification projects in Texas and Louisiana to contribute $2 per share to earnings by 2012. The company expects to commence operations at the facility by 2011.