Inter Parfums Hits Price Target
Inter Parfums (IPAR) growth strategy of acquiring exclusive worldwide licenses and developing new prestige fragrances under the brand names acquired from the licenses has resulted in a 20% sales growth rate. Management has aggressively pursued additional license agreements with Gap (GPS) and Quiksilver (ZQK) -- and has also entered the skin care category.
Earnings guidance has been increased after each of the last four quarterly earnings reports. Having attained the price target, the stock is rated a Hold.
Inter Parfums stock has traded in a wide P/E range of 7.0 to 41 over the last five years and also a wide P/S (Price-to-Sales ratio) range of 0.4 to 2.2 times trailing sales. The company has exhibited an above-average sales growth rate, but earnings growth has lagged sales growth due to the inherent risks associated with new products development that is dependent on renewable licensing agreements. The target price of $25.50 is based on a 20 P/E on 12 month trailing earnings.
Upgrading Intellon to a Buy
We upgraded Intellon Corp. ( ITLN) to Buy from Hold, after the telecommunications company posted first-quarter results that handily beat Wall Street expectations, helped by continued growth of home networks. Margins are trending up and we see the string of quarterly losses ending in the second half of 2008.
A number of technologies seek to address the growing need for the home network market, estimated to grow to $17.1 billion in 2008. Intellon believes that most local area network technologies have their limitations, and an additional wired network technology, like powerline communications, is needed to handle the growing multi-media connectivity requirements of the digital home. We believe powerline communications is also more convenient than Ethernet, coaxial cable and telephone wiring LANs because it uses the existing electrical wiring and outlets to create the home network.
ITLN is currently trading at a 12.2x multiple to 2009 estimated earnings. The company's next generation HomePlug AV-based IC, expected to be based on a 65 nanometer process, should help in raising margins. While high price of oil and gas could provide a short-term tailwind, we believe Intellon should outgrow the broader semiconductor market. We set a price target of $8 on the stock, which represents a 17.7x multiple to 2009 earnings.
Stone Energy Positives Priced In
While Stone Energy's (SGY) first-quarter 2008 earnings came in significantly better than expected, the more important development, in our view, is the acquisition of Bois d'Arc Energy. The strategic rationale of the transaction is compelling, given the complementary asset bases, strategies and skill sets of the two companies.
The new Stone Energy will be more diversified with a significant Gulf of Mexico [GoM] exploration exposure. On the other hand, integration issues and a repositioned business strategy (higher risk profile due to greater exploration focus on the low reserve-life GoM shelf) will take center stage in the Stone Energy story in the coming days.
Our Hold recommendation, price objective and EPS estimates remain unchanged. While visibility on the company's long-term organic growth prospects were always poor, the Rockies exit further compounds the issue. The divestiture of faster growing and longer reserve life assets further increases the company's reliance on the mature and low reserve life GoM properties. The Bois d'Arc transaction will do little take care of this aspect of its asset portfolio.
A Buy Rating on Indonesia's TLK
We maintain our Buy rating and the same valuation target for P.T. Telekomunikasi (TLK), after Indonesia's largest telecom carrier reported first-quarter results which were generally in-line with our estimates. The company shows solid growth in cellular services and interconnection revenue. We also remain confident in Telekomunikasi's earnings momentum.
