Reduced Harris Interactive Target

We maintain our Hold rating on Harris Interactive, Inc. (HPOL) on the basis of weaker near-term growth prospects. Since Harris is the leader in Internet-based market research, the company appears well-positioned in this market. The company is also growing through acquisitions. It is pursuing strategic relationships with large multinationals.

But going forward, management downgraded its guidance for FY2008. Revenues are now expected between $237 million and $247 million, down from the previously forecasted range of $258 million $265 million. On a diluted basis, the management anticipates EPS to be around $0.01-$0.03. But given the management's spotty forecasting record, the projection could prove optimistic.

Our outlook for the rest of fiscal 2008 is muted, as the company still appears to be roiled in the worst of shakeouts in its biggest vertical, Healthcare, which was even weaker in Q3 and into Q4:FY08, as well as being expected to be weak for another two quarters yet. We also view that margin upside through effective expense management, perhaps coupled with improvement in sales bookings activity through more effective sourcing of global projects should act as a catalyst for the stock over the next three to six months.

Currently, Harris Interactive is trading at 28.6 times our preliminary FY2009 EPS estimate of $0.07. We would wait to see if the new business pipeline improves significantly enough on an organic basis in FY2009. We set a reduced target price of $2.50. Our target price is derived by applying a target multiple of 35.7x our FY2009 EPS estimate, which is currently higher than the median P/E multiple for the industry.

Moody's Still Exposed to Risk

We maintain a Hold recommendation on the shares of Moody's Corporation (MCO). A major slowdown in residential mortgages and poor credit market conditions are responsible for the decline in Moody's stock price as investors have grown increasingly concerned about its outlook. Moreover, the company's inaccurate credit rating on European debt securities exposes Moody's to new risks.

Moody's seeks to add value to company ratings by providing greater analysis of issues related to creditworthiness, including enhanced liquidity and cash flow analysis and evaluation of accounting and corporate governance issues. We believe that Moody's remains a solid franchise and will show substantial growth with its diversified business model and international growth. However, the company will face continuous pressure from negative headlines and likely face additional expenses related to increased regulation.

We therefore maintain our Hold rating and set our target price to $39.50. Moody's shares are currently trading at a P/E of 19.2x our 2008 EPS estimate of $1.99, a discount to the industry mean. Thus, we set our target price to $39.50 based on a P/E multiple of 19.8x our 2008 EPS estimate. This P/E is towards the low-end of its five-year historical trading range of 14x-30x forward earnings, reflecting continued risks associated with the home mortgage market.

MWI Veterinary Needs to Grow

With a growing sales force and ability to establish strong and expanding relationships with veterinarians and vendors, MWI Veterinary Supply, Inc. (MWIV) is poised to continue benefiting from the positive industry dynamics of the animal health products market. Although organic growth is still strong as the company penetrates new markets, the company will need to make additional acquisitions to maintain its strong growth outlook. We reiterate our Hold rating on the stock.

In a highly fragmented veterinary market, MWI is able to grow sales at rates that are higher than the market in most or all of its geographic regions.