POOL Keeps Itself Afloat

We reiterate our Hold rating on shares of Pool Corp. (POOL) following the release of second-quarter financial results.

Despite the fact that the company is the dominant force in its industry and has a consistent track record of delivering growth in both revenues and earnings, the current operating environment remains challenging. The downturn in the housing market, adverse weather conditions in key markets, and the negative impact of recently opened sales centers have been cited as reasons for the challenging operating environment.

In our opinion, Pool has taken steps to position itself well in preparation for a return to a more normal demand environment and stands to reap substantial benefits when the market eventually improves. While the second-quarter results provided some evidence that the company's business may have stabilized, we continue to prefer a cautious outlook.

Given the current challenging operating environment, we believe that a multiple near the low end of the company's historic range remains appropriate. We see little in the way of a current catalyst that could justify significant price appreciation in the near term.

Shares of POOL currently trade at approximately 16.0x our 2008 EPS estimate of $1.28, and at approximately 13.5x our 2009 EPS estimate of $1.52. Over the last five years, shares of the company have traded at forward P/E multiples between 12x and 29x. Our six-month price target of $21 represents a multiple of 16.5x our 2008 EPS estimate.

Alcon Trades at Lofty Valuation

All three major businesses lines at Alcon Inc. (ACL) should continue to generate strong topline growth. Tax incentives will additionally benefit earnings per share. While the company is faced with several issues including patent challenges and expirations as well as pipeline setbacks, we like the fundamentals at Alcon.

However, the lofty valuation the shares trade at likely leaves little room for significant appreciation in the near term. We like the stock as a long-term holding and rate the shares a Hold.

Continued international penetration and market share gains will be the fuel for future growth at Alcon. Sales in emerging markets, including China, Russia and India continue to be big contributors to growth. The company generates a significant amount of operating cash flow which we would expect to be reinvested in the form of acquisitions or increased research and development in an effort to restock the company's drug portfolio following certain patent expirations.

We believe Novartis (NVS), upon gaining majority control of Alcon (expected by August 2011), may have more to offer Alcon than did Nestle.