Zacks senior services industry analyst Steve Biggs, CFA remains neutral on DST Systems, Inc. (DST), the business service provider. The following excerpts explain why:

'DST Systems, Inc. continues to post solid EPS growth and has begun to show a reacceleration in share owner accounts processed. However, much of its EPS growth has been due to share repurchases, funded through asset sales and leveraging of the balance sheet, including the sale of its Asurion stake in the third quarter. However, we believe share owner account growth has been priced into the shares and share repurchase at recent rates is unsustainable.

'Shares of DST Systems are currently trading at a P/E multiple of 23.6x our 2007 earnings estimate of $3.50. This represents a small discount to industry median and S&P 500. Although DST has shown minimal revenue growth in the recent quarters, we believe growth could be poised to re-accelerate with recent client signings and passage of recent legislation. However, we are concerned about stagnant cash flows and the maturity of the industry in which the company competes.

'We, therefore, maintain a Hold rating on the shares of DST with a higher six-month target price of $90.50 to account for organic growth. This represents a multiple of 22.2x estimated 2008 EPS, slightly below its current year multiple, which we believe is a fair valuation for DST shares given recent improvements.'


Here's why Zacks senior energy analyst Sheraz Mian is keeping his Hold recommendation on shares of Smith International (SII), the oilfield machinery company:

'Smith International's third-quarter 2007 results came in modestly below our expectations, reflecting weaker-than-expected offshore results. On a year-over-year basis, revenue and earnings grew 17.3% and 25.5%, respectively, driven by higher Oilfield segment business volumes in the Eastern Hemisphere and Latin America.

'Sequentially, revenue increased 6.2%, while earnings grew approximately 9%, reflecting the impact of the seasonal recovery in Canada, higher tubular sales volumes in the U.S., and contribution from recent contract awards in Latin America. We have adjusted our 2007 EPS estimate for the quarterly miss, while our 2008 EPS estimate remains unchanged.

'The sequential growth is primarily attributable to improved energy sector results driven by higher North American drilling and completion activity levels and, to a lesser extent, higher demand for tubular products. Industrial and downstream businesses were comparable to the prior-quarter levels. Smith International ended the quarter with cash on hand of $98.7 million and total debt of $1.09 billion (including short-term borrowings of $153.7 million). The quarter-end total debt-to-capitalization ratio stood at 30.9%.'