Garmin Still Leading Its Market
Garmin, Ltd. (GRMN) is an OEM (original equipment manufacturer) of GPS-based equipment. June quarter results were short of the consensus on both the top and bottom lines. All segments were up double-digits in 2007, and are expected to be up again in 2008.
Pricing pressures continue to intensify, however, negating some of the growth in units. Management is optimistic about material prices offsetting ASP pressures in 2008. We see increasing revenue and gradually decreasing profitability for the company.
However, being a market leader, the company should fare better than most of the other smaller players. Consequently, we view the declining share price as an opportunity to accumulate shares. We reiterate our BUY rating.
Acergy ADRs Upgraded to a Buy
London-based Acergy S.A. (ACGY), previously known as Stolt Offshore S.A., is a leading oilfield contractor engaged in the designing, procurement, building, installation and servicing of a range of offshore surface and sub-surface equipment for the oil and gas industry. This equipment includes the above-water topsides and platforms used for processing oil and gas, pipelines, and electrical and hydraulic cables (also called umbilicals) used to control sub-sea wells.
We are upgrading Acergy to Buy from Hold on valuation grounds. The ADRs look very attractive at current levels, having dropped 47% in the last 12 weeks in response to the pullback in oil prices. In spite of some near-term challenges in the form of weak expected delays project awards and a tentative commodity-price environment, the long-term outlook for deepwater offshore activities remains very favorable.
We view ACGY ADRs as an attractive vehicle to play this positive outlook for deepwater construction. Our unchanged $19 price objective represents 2009 P/E and EV/EBITDA multiples of 10X and 6X, respectively, still at significant discount to the broad oilfield service market.
PeopleSupport Lowered to Sell
PeopleSupport, Inc. (PSPT) is positioned to benefit from the offshore business process outsourcing market. The Cincinnati, Ohio-based company's rapid revenue growth and investments production capacity in the Philippines and Costa Rica, however,'has'resulted in negative earnings surprises and significant near-term margin contraction.
The news drove the stock down to reasonable valuation levels, at which time the rating was raised to a Buy at $11.16. In August, the company received and accepted a $12.25 per share buyout offer. The stock has little appreciation left; therefore, the recommendation was been lowered to a Sell.
