Interactive Brokers Adjusted

Interactive Brokers Group's (IBKR) second quarter diluted earnings of $0.44 per share (down 33.3% sequentially, but up 57.1% compared to the prior-year quarter) were six cents short of our estimate.

The results were impacted mainly by the 32.6% sequential decline in market making segment's net revenues (due to subdued market volatility), while the brokerage segment's net revenues were down 3.0% compared to the prior quarter. The company continued to maintain a highly liquid balance sheet with low leverage, and a strong capital position. After reviewing the results, we are moderating our EPS estimates and six-month target price for IBKR, while maintaining our Hold recommendation on the shares.

IBKR is currently trading at 13.4 times the consensus estimate for FY08, a 4% premium to 12.9 times for the peer group median. On a price-to-book basis, the shares trade at 2.34 times, which is at par with the peer group median. We would however not place much value on peer analysis as IBKR does not have a good peer group.

Our six-month target price of $29.00 per share equates to about 14.2 times our forward estimate for FY08. With no dividend to supplement, this target price implies a 5.8% expected total return over the same period. Additionally, the quantitative Zacks Rank for IBKR is currently 3, indicating no clear directional pressure on the shares over the near term. Short interest is currently 12.0 days versus 8.7 days previously.

ENER Still a Speculative Buy

We remain optimistic about Energy Conversion Devices, Inc.'s (ENER) long-term potential success in the high growth alternative energy industry, given increased activity in solar power projects. Looking forward, the story will continue with geographically diversified sales pipeline touching $1.8 billion, intended expansion to 1GW by 2012, reducing cost per watt, committed supply agreements and falling material cost through expansion of supplier base.

Nevertheless, we note the stock's high volatility, pending sale of its Cobasys joint venture, higher pre-production costs, and a history of EPS losses till Q2'08, without meaningful valuation metrics, collectively show potential for moderate-to-high returns yet with high risk. Accordingly, we maintain a speculative Buy recommendation on ENER common stock with a six-month target price of $85, representing an 11% upside potential.

Looking ahead through the company's current fiscal year 2009, ENER is expected to maintain its bottomline profitability achieved in the last two quarters. Media reports suggest General Motors Corp. (GM) is close to acquiring ENER's proprietary nickel metal hydride (NiMH) battery system solutions JV, Cobasys. The company has also entered into a patent license agreement in connection with its proprietary NiMH battery technology with Shenzhen Grepow Battery Co., Ltd. of China.

Additionally, in the second quarter of fiscal 2008, the company entered into an agreement to supply UNI-SOLAR laminates, which includes a 21.15 MW multiple-year supply agreement with Enfinity Management, a 17 MW supply agreement with SunEdison, and several sales agreements in South Korea including a take-or-pay commitment from AirTec for 25 MW in 2008 and 2009.

Transocean Spreading Wider

We are maintaining our Buy recommendation on the world's largest offshore drilling contractor Transocean Inc. (RIG) shares following the company's solid operational results in the recent quarter. The company reported strong revenue and earnings growth, driven by the acquisition of GlobalSantaFe and higher average dayrates. Revenue more than doubled, soaring to $3.1 billion, while net income topped $1 billion.

With a backlog of nearly $41 billion, the new Transocean offers an unparalleled level of earnings and cash-flow visibility. We expect the positive momentum to continue due to the favorable deepwater drilling outlook that should support demand for the company's products. Our unchanged price target stands at $165.

The ultra-deepwater drillship, Discover Spirit, was awarded a three-year drilling operations contract worth up to $569.4 million with Anadarko Petroleum Corp. (APC), commencing December 2010. In March, the ultra-deepwater drillship, Nautilus, received a three-year contract extension with a subsidiary of Royal Dutch Shell Plc. (RDS.A) at $535,000 a day.

Last month, Transocean announced the award of a five-year contract for its drillship Deepwater Pathfinder worth about $1.19 billion by Italian oil company Eni SpA (E).