Teekay Shipping Ests Adjusted

We are maintaining our Hold recommendation on Teekay Corp. (TK), but reducing our target price to $37. TK reported second quarter EPS of $1.05 before nonrecurring items, below consensus of $1.20 and our estimate of $1.10, largely reflecting higher-than-expected minority interest expense.

Despite this, we are raising our diluted EPS estimates to $3.75 from $3 for 2008 and to $4 from $3.15 for 2009, due to higher revenue growth from current strengthening in spot tanker freight rates reflecting increasing tanker demand, limited tanker fleet supply and higher volumes of crude imports into China.

Our estimates do not incorporate potential revisions related to changes in the accounting treatment for derivatives. TK announced that these changes will necessitate restatements of financial results back to 2003. We believe the dividend is safe.

Demand for oil tanker capacity has been rising due to continued global economic growth. According to the International Energy Agency, world oil demand in 2008 is expected to average 86.9 million barrels per day (b/d), an increase of 1%, or 900,000 b/d, above 2007. Demand growth is forecast to increase by 1.1% during both the third and fourth quarters of 2008 relative to the comparable 2007 periods.

Extraordinary growth in drybulk sector has led to a large drop in new tanker orders, as well as the conversion of an increasing number of tankers for conversion to drybulk ships, thereby dampening tanker supply growth.

As a result, spot freight rates have generally been fairly strong. This provides significant operating leverage to the spot market and offers the company opportunities to pursue the best risk-adjusted returns in either the spot or fixed-rate markets. Teekay has also significantly improved its financial metrics using its strong cash flow over the last few years to enhance shareholder value.

AMD Gaining Share in China

Advanced Micro Devices (AMD) is the second largest producer of microprocessors and chipsets in the world. June quarter results missed the consensus on both the top and bottom lines.

Forward guidance is for revenue to be up in-line with seasonality. The company will dispose off the non-core handset and DTV lines. Shares of AMD are currently trading at 0.5x our 2008 sales estimate (P/S). While Intel (INTC) remains unparalleled at the high end of the microprocessor and chipset market, AMD has been taking share at the low end.

The management's strategy of providing lower cost solutions has enabled the company to gain share in the greater China region. We think we will see the advantages of this strategy unfold over the next two years. As AMD churns out faster and more efficient products at the low-to-mid-range, a large percentage of users, with smaller functional needs are likely to switch to the lower-priced product.

Further, with the launch of the latest processors, AMD has once again taken the technological lead. Although its 45nm program is behind Intel, the company's products continue to provide an attractive value proposition for customers.

We remain bullish about the stock and believe it deserves a higher multiple. However, the debt level remains very high, and execution remains and issue. We are reiterating our Hold rating and cutting the target price to $8.00, which corresponds to a 0.8x multiple of our 2008 sales estimate.

Penney Fairly Priced Pre-Earnings

JC Penney Co.?s (JCP) second-quarter results should benefit from the government?s $600 stimulus checks and markdowns on its merchandise. The management recently boosted its quarterly EPS guidance from $0.38 to $0.50. JC Penney is scheduled to report earnings on August 15.

We are increasing our EPS estimate by $0.12. However, we continue to believe the macro conditions that have negatively impacted consumer discretionary spending are not improving, and that will weigh on JC Penney?s results in the second half of the year.

All told, the shares are discounting continued weakness, but the headwinds affecting the consumer make it too early to get long the stock. We continue to recommend staying on the sidelines until conditions show signs of improving.

JCP shares currently trade at 11.4x our fiscal 2008 EPS estimate and 10.7x our fiscal 2009 EPS estimate. We think the stock is reasonably priced, given the negative headwinds facing the consumer. We estimate that JC Penney has normalized earnings of $4.20 per share. That is based on annual sales of $20 billion and an operating margin of 8%.
Based on those assumptions, JCP shares are trading at an attractive 7.5x normalized EPS.