General Growth Worries Overblown

General Growth Properties (GGP) is the second largest shopping center owner, manager, and developer in the US. Currently, the company owns and manages a portfolio of more than 200 regional shopping malls in 44 states.

Despite weakening consumer spending patterns, operations held up relatively well in the 2nd quarter. The company reported solid increases in SS NOI (same-store net operating income)?and overall portfolio occupancy. Shares of GGP have fallen over 40% in the past three months. There has been some speculation that GGP will not be able to refinance all of its near term debt.

We think this is overblown, and GGP is not at any risk of default on any of its loans. The value of the company?s real estate is well in excess of its debt and the company owns quality malls with stable cash flow. On a price/FFO (funds from operations)?basis, GGP now trades at a 42% discount to its peer group average. In addition, the stock is valued at a nearly 40% discount to our estimated NAV (net asset valuation).

We would not be sellers at this low valuation, although retail conditions will get worse through the end of 2008 and high end malls will have difficulties as consumers opt for big-box discount retailers. In addition, near term refinancing risk will continue to weigh on the shares. We are changing our recommendation Hold and are setting our price target at $26.00 per share or approximately 8x 2008 FFO estimates.

Foster Wheeler a Near-Term Hold

Given the uncertainties that have crept into worldwide financial expectations, we have maintained our Hold opinion on Foster Wheeler, Ltd. (FWLT). Our six-month target price is based on current market conditions, which are erratic and have been known to change quickly and violently.

For the longer term, FWLT is actively developing oxy-combustion technology for both circulating fluidized-bed boiler technology (CFB) and pulverized coal (PC) boilers, as oxy-combustion is one part of a practical solution for capturing and storing the majority of the CO2 from coal power plants.

Investment in new oil and gas, refining and petrochemicals/chemicals facilities, and modernization, expansion and upgrading of existing facilities in these sectors is expected to continue to be robust throughout the remainder of fiscal year 2008.

FWLT's business has not been directly impacted to date by the credit market crisis resulting from the sub-prime mortgage crisis in the U.S. market, as clients typically do not rely on financing for their capital investment programs. However, the possibility exists that credit conditions, as well as a slowdown or recession in global economic growth, could adversely affect the industries in which clients operate and, as a result, FWLT's Global E&C Group's business.

The overall global refining system appears to still be running at high utilization rates and that global demand for many refined products, particularly middle distillates (diesel, jet fuel, and heating oil), will continue to grow strongly. Therefore, it is probable that refining capacity will continue to be added through the development of grassroots refineries, notably in the Middle East and Asia.

Myriad Genetics Downgraded

The recent discontinuation of Myriad Genetics, Inc.'s (MYGN) lead candidate Flurizan, a treatment for Alzheimer's disease, concerns us about the company's growth strategy. The failure to achieve statistical significance for either of the primary endpoints in the phase III trial of Flurizan led to the discontinuation of the development program for the drug in June.

The company has engaged an investment bank to revisit its growth strategy, but we do not know what the next step would be at this point. We do not think separation of the predictive medicine and the therapeutic program will create much value for the shareholders. We are concerned about the post-Flurizan uncertainty for the company in the next a few quarters and downgrade the shares from Buy to Hold.

We estimate Myriad Genetics will turn profitable in fiscal 2009 with an EPS of $1.28. At its current price of $64.5, the P/E ratio is 50 x, higher than the diagnostic industry's P/E of 35 x. However, EPS will increase 35 percent annually in the next three years from 2009 to 2012 and the higher P/E is warranted. But we do not see sizable upside potential at this point. We arrive at our target price of $65 by applying an industry P/E multiple of 35 x to our fiscal 2012 EPS of $3.16, discounted at 20 percent for three years.

Perfect World Fairly Decent

As expected, Perfect World ADS's (PWRD) revenue and earnings for the second quarter showed strong growth. We think Perfect World's results demonstrate that it has the ability to develop and operate 3D online games despite Sichuang Earthquake and the fierce competition in the Chinese online gaming market.

The online gaming market in China has great potential. We forecast China's online gaming market would grow to RMB 40.1 billion yuan by 2011. Currently the company has a strong online game portfolio and several prospective games are in development stage. Its games under operation showed strong growth momentum in the past several quarters. Moreover, the company's international expansion strategy will offer value diversification.

However, we are concerned with how long the company can maintain this momentum in such a competitive market. The company has to develop popular games continuously to maintain its growth momentum. Moreover, in hopes of fighting online game addiction especially of underage players, the Chinese government has required the main online-game providers to limit the use of their games to three hours per session. We are maintaining a Hold rating on Perfect World.

Based on our estimate for fiscal year 2008 earnings per ADS, the stock is trading at 13.8x, which is lower than the industry average and that of its Chinese peers. Based on our estimate for fiscal year 2009 earnings per ADS, the company is trading at 11.5x, which is far below the industry average. Using a P/E multiple of 11.1x our fiscal year 2009 earnings per ADS estimate yields a target price of $24.5 which we believe reflects the company's prospects.

Arris Group Upside Limited

Arris Group, Inc. (ARRS), a leading provider of communication infrastructure for broadband networks, announced mixed financial results for second quarter 2008.

The company?s overall revenue growth was limited as a result of softening sales to Comcast (CMCSA) and Time Warner Cable (TWC). Net income, however, was above our estimates due to effective expense control and the introduction of higher margin products, following its C-COR acquisition. Arris maintains a solid order backlog, a favorable book-to-bill ratio, and strong free cash flow. We also believe the deployment of switch-digital video will ramp up in early 2009 to support Arris' growth projections.

On the other hand, it is our opinion that the company has a limited range of product offerings as its EMTA line of solutions may have reached a demand plateau. This, together with ongoing global economic uncertainties, may hinder valuation improvements over the near-term. We maintain our Hold recommendation.

Arris is currently trading at 13.7x our estimated earnings for fiscal 2008. This represents a substantial discount to both the S&P 500 and the peer group averages. With respect to other selected valuation metrics, the stock is also trading below its peer average. We set a six-month target price of $11 based on an approximate P/E multiple of 16x our fiscal 2008 earnings estimate, a discount to the peers due to limited product offerings and a concentrated customer base.

Dresser-Rand Group, Inc

Dresser-Rand Group, Inc (DRC) continues to make strategic acquisitions and recently announced solid second-quarter results. While the company has seen quarterly earnings grow more than 78%, it remains reasonably priced with a PEG ratio of .58.

Company Description

Dresser-Rand Group is an international supplier of machinery for oil, gas, and related industries. The company is headquartered in Houston, Texas, carries a market cap of $3.2 billion and employs over 6,000 people.

A Solid Quarter

On July 30th Dresser-Rand announced second-quarter earnings of 55 cents per share, a 78% year-over-year increase. Earnings were 28% higher than the 42 cents per share expected by analysts. This is the third surprise in the last four quarters.

Total revenue was also up 22.7%, $541.2 million from $441.2 million in the same quarter last year.

The company also announced significant progress on two of its strategic initiatives, including acquisitions and repurchasing company stock. Dresser-Rand has repurchased approximately 75% of the $150 million worth of stock allotted under the plan announced earlier this year.

Expanding Through Acquisitions

On August 8th the company announced the future acquisition of Arrow Industries, Inc, which specializes in reciprocating engines and compressors used in pipelines. Arrow has provided services for Dresser-Rand in the past and will bolster the company's pipeline services.

Dresser-Rand also announced the completed acquisition of assets from Enginuity LLC. Enginuity will enhance Dresser-Rand presence in the gas transmission market and recorded $16 million in sales for 2007.

The Chart

The stock is consolidating near $37.50 per share following the second-quarter announcement. Shares of DRC were in a downward trend over a month leading up to the earnings surprise. Take a look at the chart below.

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Almost Family, Inc.

Almost Family, Inc. (AFAM) continues to post strong results in this depressed economic environment. The company's second-quarter results were far ahead of analyst expectations and its share price has been rallying in response to higher earnings estimates.

Almost Family, Inc. provides home health care services in various states throughout the United States. The company operates in two segments, visiting nurse and personal care. The company was founded in 1985, has a market cap. of $206 million and is headquartered in Louisville, Kentucky.

A Great Quarter

Almost Family's share price has been on an intense rally for the last two months, and after the company reported record setting second-quarter results on August 6, it was obvious why.

Net services revenue increased 50% from last year to $48.7 million. Net income surged to $3.9 million, up from $2 million in the same period last year, a 95% gain. This produced earnings of 50 cents per share, blowing past analyst estimates of 38 cents per share. The company noted that it was able to achieve these impressive earnings results in spite of issuing an additional 2,512,500 shares.

Almost Family has continued to experience exceptional growth from its visiting nurse segment, which posted a 66% increase in revenue from last year to $38.9 million.

A History of Surprising

This was the fourth time in four quarters that AFAM has either matched or beaten analyst estimates, having done so by an average of 8 cents, or 22%.

Almost Family noted during its press conference that it had recently been added to the Russell 2000 Index and had been named one of Fortune Small Business' 100 fastest-growing small public companies.

Analyst Estimates

Almost Family's share price has been advancing in tandem with analyst earnings estimates. The current-year estimate now stands at $1.88 per share, up from $1.42 per share 90 days ago and up from $1.51 30 days ago. The next-year estimate is bullish, projecting earnings of $2.23 per share, a 19% jump from this year.

The Chart

As previously mentioned, shares of AFAM have been on a big rally since early June, climbing to the recent high above $41 from just below $23. More recently, shares have once again begun to advance and are now pressuring the 52-week and all-time high. Take a look at the chart below.

Animal Health at Good Value

With a significant number of products expected to lose patent protection over the next several years, we believe Animal Health International, Inc. (AHII) is well positioned to enhance margin expansion through the incremental addition of private label products to the product mix.

Animal Health?s existing infrastructure and longstanding supplier relationships on the production side represent significant comparative advantages, which underpin the company?s ability to grow both organically and via acquisition in both the production animal and relatively faster growing companion animal markets. In addition to its branded product offering, the company also distributes its own higher margin private label product lines, which are marketed under the RXV Products, AGRIpharm, First Companion, Mineral Max, and Ivermax brands.

The company is expected to report fourth-quarter financial results on September 18. Our current revenue and EPS estimates are $181 million and $0.17 respectively versus consensus estimates of $176 million and $0.14. Our Buy recommendation remains intact at current levels. We have valued the shares on a forward price/earnings (P/E) basis, as well as a comparison to similar firms in the animal health products sector. Our $9 price target represents a 17.3x times fiscal 2008 EPS of $0.52.

UniFirst Corp.

UniFirst Corp. (UNF) recently declared a quarterly cash dividend of 3.75 cents per share. The company noted that the dividend will be paid on Oct. 3 to shareholders of record as of Sept. 12.

Company Description

UniFirst Corporation manufactures workplace uniforms, protective clothing and facility services products. The company has 200 customer service, distribution and manufacturing facilities that service 200,000 customer locations in 46 U.S. states, Canada, and Europe.

UniFirst, a Zack's #1 rank (Strong Buy), has been in the business of renting, leasing and selling work clothes since 1936. UNF services 98 of the top 100 metropolitan markets in the United States and a majority of Canada.

The largest portion of the business is the Uniform Rental Service program, which provides a uniform, weekly cleaning, maintenance and any needed replacements for a weekly fee. The company also is big in the laundry services area, with plants throughout the U.S. and Europe.

UNF also specializes in cleaning and decontaminating garments worn by workers who maintain and refuel nuclear power and nuclear processing equipment.

The company's third business segment is distribution and manufacturing. UNF has three manufacturing facilities in the US and Mexico which produce millions of garments. By keeping the manufacturing in-house, it allows the company to provide a certain level of customization for customers.

A Recent Dividend Declaration

The company declared a quarterly cash dividend of 3.75 cents per share in early July. UniFirst noted that the dividend will be paid on Oct. 3 to shareholders of record as of Sept. 12.

UniFirst Reports Record Revenues and Earnings for the Third Quarter

On July 2, UniFirst reported third quarter earnings that beat Wall Street estimates by 11.54%, or 9 cents per share. Net income rose 23.8% to $16.9 million, or 87 cents per share, from $13.7 million, or 71 cents a share in the year ago period. Analysts expected 78 cents per share.

For the first nine months of the fiscal year, net income increased 41.6% to $48.7 million, or $2.52 per share, from $34.4 million, or $1.78 per share in 2007.

Revenues jumped 10.8% to a record $254.6 million for the third quarter. For the first three quarters, revenues surged 14.5% to a record $772.2 million. However, the first three quarters were one week longer than fiscal 2007. That extra week occurred in the second quarter of 2008.

The revenue increase was due primarily to growth in the core laundry segment, which represents about 90% of the company's consolidated revenues. Core laundry revenues grew 11.5% for the third quarter compared to 2007.

Higher energy costs are impacting UNF as the company operates a fleet of delivery trucks but the company is, for now, offsetting those increases with lower payroll costs.

Analysts Raise Estimates for the Fourth Quarter

In response to the record earnings in the third quarter and statements from UniFirst that they still believe the year will be a record year for the company, consensus estimates have been rising on the fourth quarter as well as the full year.

In the last two months, fourth-quarter estimates increased by 5 cents to 68 cents per share from 63 cents per share. For the full year, consensus estimates are up 5% in the last two months to $3.19 from $3.04 per share.

Value Fundamentals

UniFirst's forward P/E is 13.37. Its price-to-book is 1.6, which is in line with the industry average. The company?s return on equity (ROE) of 11% is also in line with the industry average. As an added bonus, UNF also has a current dividend yield of 0.30%.