Foster Wheeler Downgraded

The global economic growth - coupled with the attendant demand for oil, gas, petrochemicals and refined products - that stimulated investment in new and expanded plants over the last 12 to 24 months, is expected to continue to some degree during 2008. In addition, driven by the rising cost of power and the high price of oil and gas, the demand for solid-fuel industrial boilers also persists.

Nevertheless, given Foster Wheeler Limited's (FWLT) disappointing Q4-07 results - actual EPS of $0.56 vs. an estimate of $0.81 - and the uncertainties that have crept into worldwide financial expectations, we have reduced our 2008 and 2009 EPS estimates from $3.58 and $4.32 to $3.44 and $4.11.  We have changed our opinion from Buy to Hold, and lowered our six-month target price to $67.42.

The company requires cash repatriations from non-U.S. subsidiaries to meet domestic cash needs related to the U.S. pension plans, asbestos-related liabilities and corporate overhead expenses. Also, its ability to repatriate funds from our non-U.S. subsidiaries could be limited by a number of factors.

International operations involve risks that may limit or disrupt operations, limit repatriation of cash, increase foreign taxation or otherwise have a material adverse effect on the company. Certain debt agreements impose financial covenants, which may prevent the company from capitalizing on business opportunities and taking certain corporate actions.

The average P/E for the engineering and construction group is 19.6 as compared to 19.2 for FWLT. Our projection for FWLT for fiscal 2008 is $3.44/share, fully-diluted; using the average P/E of 19.6 engenders a price of $67.42, which is just 4% higher than FWLT's current price.

Challenges to Cooper Tire Market

Cooper Tire & Rubber Company (CTB) specializes in the manufacture and marketing of automotive products. Focus on improving product mix and lower costs are likely to improve the earnings prospects of the company in the long-term. The company is working constantly to increase its capacity in order to meet the rising demand for replacement tires in the high performance and ultra-high performance categories.

On February 28, 2008, CTB reported results for the fourth quarter and full-year ended December 31, 2007. In the fourth quarter, excluding one-time items, the company reported a profit of $0.82 per share, compared to $0.45 per share in the corresponding quarter of 2006. For the full year 2007, the company reported diluted earnings per share of $1.91, compared to a loss of $1.28 per share in 2006. Total revenues were up 13.9% to $2.9 billion from the year ago period. Sales in North America increased 10.8% to $2.2 billion while International sales increased 29.6% to 8.8 million.

The company repurchased three million shares for $46 million in 2007. For the first quarter of 2008, the company lowered its earnings guidance to $0.20 per share.

Currently, CTB is trading at 11.0x our 2008 EPS estimate of $1.55. Initiatives taken by CTB to improve its product mix and cut costs will help the company restore margins in the future. However, a challenging North American auto environment makes us rate the stock a Hold with a six-month target price of $19. This is 12.3x our 2008 EPS estimate.

Merge Tech Shows Cash Burn

Due to goodwill and other intangibles impairments, Merge Technologies Incorporated (MRGE) reported a Q307 loss per share higher than our estimate. Given the quarter miss and the difficult environment the company faces, both external and internal, we are reducing our estimates again. The company filed its delayed Q307 10-Q in February 2008. Management turnover, accounting issues, competition and reimbursement challenges have greatly affected the company's operations.

Despite right-sizing initiatives, the company continues to burn cash, with its cash balance down to $14 million at year-end 2007, roughly two quarters remaining burn. MRGE is weighing several options, including spinning out its EMEA division, to increase cash or reduce cash burn. Although the company signed 35 new customer contracts for the first nine months of 2007, bookings remained sluggish at $40 million, suggesting continued difficult business and internal operating conditions.

Given the RIS/PACS competitive market difficulties and continued losses, we believe the company should trade at a discount to the 2008 1.6x group revenue multiple and the industry median 2x 2008 revenue multiple. At 1x 2008 revenues, our valuation target price moves to $1.50. We note the stock currently trades at roughly its year-end 2007 cash per share level of $0.41.