Upgrading Excel Maritime to Hold

We upgrade Excel Maritime Carriers, Ltd. (EXM) from Sell to Hold since EXM boasted a 214% increase in EPS in the first quarter. Revenues gained 94%, largely due to surging spot charter rates.

We expect EXM's results to benefit from the acquisition of Quintana Maritime Limited, a dry bulk shipper. Our 2008 and 2009 diluted EPS estimates are $6.50 and $7.00, respectively. We believe the dividend is safe.

Although the Quintana purchase has made EXM the largest dry bulk fleet (by dead weight tons, or dwt) operated by any U.S.-listed company, the merger may have an adverse impact on operations if EXM fails to realize anticipated benefits. But at its current price, the stock is trading on par with the dry bulk peer group median P/E multiple based on 2009 consensus estimated earnings, price/sales, and price/book.

While the company's capitalization and operating margin are about average for the peer group, the dividend yield is below average and the ROE [return on equity] is above average. Our $56 target represents an 8X P/E based upon our 2009 diluted EPS estimate of $7.00 per share.

DTS, Inc. a Hold on Valuation

DTS, Inc. (DTSI) is a leading provider of entertainment technology, specializing in digital multi-channel audio1 technology, products and services for entertainment markets worldwide.

Increasing demand for DTS technologies in cars and PCs augur well for the earnings growth of DTS. The company is also diversifying its business and is enhancing the use of DTS technology in standard definition applications, which we believe will drive revenue growth in 2009. Moreover, with the completion of the sale of its Digital Cinema business, DTS should be able to concentrate on the Consumer business and benefit from the anticipated acceleration of the high-definition cycle. Nevertheless, we think the valuation multiple expansion is unjustified, given the risks posed by an economic slowdown, and rate the stock a Hold.

With the car market remaining robust in 1Q08, the company also struck a deal with motherboard manufacturer Foxconn to integrate the DTS technology in their PC motherboards. We also expect the company's transition to high-definition media devices will boost revenue and think that the management's expectations for the high definition business to exceed 15% of 2008 revenue are viable.

Going forward, the company will concentrate on HD players, home audio, PCs, game consoles, and broadcast, and expect that these opportunities would drive significant revenue.