United Thera Expecting Too Much

Although the current business fundamentals at United Therapeutics Corp. (UTHR) are solid, we are seeing several potential hiccups coming in the next year. With the stock up 65% over the past twelve months and currently trading at 50x our 2008 EPS estimate, we believe investors are pricing the stock for near-flawless execution.

Expectations are high, and any slip-up, even minor, may cause a sell-off in the shares. As a result, we are initiating with a Sell rating and an $82 price target.

Our financial model is yields well below consensus forecasts starting in 2010 based on a number of circumstances. Firstly, we model a slowdown in the overall growth rate of SC/IV Remodulin down from the expected 30% growth in 2008 to only 10% growth in 2010 based on the expected availability of a room-temperature stable Flolan (epoprostenol).'

However, beside pricing erosion and migration to generic Flolan, we believe that more physicians will begin to treat patients with oral ETRA and PDE-5 medications such as Tracleer, Letairis, Revatio, and Cialis, before they move to prostacyclins. The approval of Letairis in 2007 creates a formidable first-line competitor.

With the SC/IV patents on Remodulin set to expire in 2014, along with increasing competition from new oral medications, the future of United Therapeutics relies heavily now on reformulations of treprostinil to the inhaled and oral applications. With a market capitalization of $2.6 billion, and nearly at nearly 50x 2008 EPS, we believe investors are looking past significant risks that still remain before commercializing either an inhaled or oral form of treprostinil becomes a reality.'

We would avoid the name heading into the FREEDOM-C data expected in November 2008 on the oral formulation, and we believe there is a very good chance the FDA delays the approval of the inhaled formulation (Viveta) beyond the April 2009 PDUFA.

Genta Goes Into Survival Mode

We maintain a Hold rating on Genta Incorporated (GNTA), a biopharmaceutical company focused on developing and commercializing drugs for the treatment of cancer.

Unfortunately, the company has entered into a survival mode due to the shortage of cash. With the non-approval of Genasense for chronic lymphocytic leukemia by FDA, the future of Genasense remains uncertain. In July 2007, the EMEA indicated that approval of Genasense in melanoma will require the conduct of another clinical study. Genta believes that the AGENDA trial will be able to address the EMEA's requirement adequately.

Positive data from this trial will enable the company for the worldwide filing of Genasense as a treatment for melanoma. However, we do not expect to see data from the trial before end-2008. The company had cash and marketable securities of only $16.3 million at June 30, 2008. It raised $3.1 million through the issuance of 6 million shares to institutional investors in February 2008 and issued $20 million senior notes with 15% interest rate in June 2008.

The sales of Genasense and Ganite outside the U.S. on a named patient/compassionate basis only provide the company with limited revenue which cannot offset high R&D costs due to the current phase III trial of AGNDA. In April 2008, the Company reduced its workforce by approximately 30% in order to conserve cash. Genta also announced that it would seek a buyer for its sole marketed product, Ganite.

We do not see the company attaining profitability in the near future. We believe that Genta shares are fairly valued at the current level. Our target price is $0.70 which corresponds to a market cap of $26 million.

Visteon Downgraded to Sell

Visteon Corp.'s (VC) near-term prospects have been dampened by constant production cuts at Ford (F), higher costs and uncertainty about its restructuring efforts. An apparent rise in non-Ford revenue was not enough to drive the stock.

The current cost structure combined with spiraling raw material costs is likely to challenge VC's operating performance in the upcoming quarters. Commodity pricing pressures would continue to challenge many suppliers like VC. The highly-leveraged balance sheet still needs to be tackled. Considering these factors, we downgrade the shares from Hold to Sell and set a target price of $2.50.

During the second quarter of 2008, the company has reported loss per share of $0.32 from continuing operations, compared to the loss per share of $0.46 in the same quarter of the previous year. Total revenues were $2.9 billion, a decrease of $69 million from the same period a year ago, including $17 million of lower services revenue.

During the first quarter of 2008, the company sold its North America-based aftermarket and remanufacturing operations including facilities located in Sparta, Tennessee and Reynosa, Mexico. This has resulted in a loss of $40 million in the quarter. We also note the company's admission of the delay in its restructuring moves. Although the company has taken steps to reduce its labor costs by rationalizing high-wage hourly employees and flow backs to Ford, its benefits are muted in the short term.

Watsco Blowing Hot & Cold

Watsco, Inc. (WSO) reported second quarter 2008 EPS of $0.94, above our estimate of $0.88 and up 6.8% year-over-year, amid strong revenue growth and higher gross profit as well as contributions from various profit improvement activities implemented in early 2008.

WSO has the liquidity position and the de-levered balance sheet to continue with its aggressive acquisition strategy. With high energy prices likely to persist over the near future, we believe consumers will increase the purchase of higher-efficiency air conditioning systems. We also believe the strength of the replacement market can offset some of the rapid deterioration in the new home market in 2008. We recommend investors to Hold WSO shares in their portfolio.

WSO will deploy strategies like acquisitions to increase market share and consolidate a fragmented industry. The second strategy involves adding new products. The company is also offering private label products to customers looking for exceptional value. We believe WSO is becoming a one-stop shop for contractors and dealers.

Profit-improvement activities implemented in early 2008 contributed approximately $11 million to pre-tax income during the first half of the year and are expected to have another $20 million to $25 million positive impact over the next several quarters.

However, despite the demand boom that we expect from consumer uptake of higher-efficiency air conditioning systems, the company's sales remain exposed to the new home market. The decline in same-store sales remains a concern, too. The weakness persisted in 2008 with 1H08 same-store sales down 7%, including a 7% decrease in sales of HVAC equipment and an 11% decrease in other HVAC products, partially offset by a 2% increase in the sale of refrigeration products.

Autonation Heavily Exposed to Lag

We expect Autonation, Inc. (AN), the largest automotive retailer in the U.S., to be hurt by a continuing weak new car market. The company is disproportionately exposed to Florida and California, states that will be hit the most by a slowing car market. As a result, we rate the shares a Sell with a target of $9.

New vehicle sales continue to face a highly competitive environment, and margins for new cars are likely to fall. We are concerned about AutoNation s exposure to General Motors (GM) and Ford (F) as they represent 35% of the company's new vehicle sales.

The two automakers have been losing market share to their Asian counterparts. Sales could fall further due to a weak economy. The company has implemented a policy of purchasing less from General Motors and Ford in order to tilt its car mix towards luxury/import brands. However, AutoNation has a strong cash position.

The company continues to improve margins by altering its product mix and increasing its focus on selling parts as well as services such as insurance, finance and aftermarket product services in order to improve profitability. AutoNation is focused on profitability rather than market share.

However, the success of the company's acquisition strategy is a major risk. Its revolving credit facility restricts additional indebtedness, which will slow the pace of acquisitions. Autonation spends about $100 million per year on acquisitions, mostly earmarked for increasing the exposure of luxury and import brands.

National Semi at a Nice Price

May quarter revenue for National Semiconductor Corp. (NSM) was in-line with consensus expectations, although the EPS exceeded. Both order rates and backlog picked up in the last quarter and distributor inventory levels remain low.

Forward revenue guidance is flat-to-up 3% Q1. New higher-margin products continue to grow in the mix, and management has refocused R&D into areas that should sustain these margins and even expand from current levels. Valuation remains attractive in our opinion.