Our six-month target price is US$30 per ADR is based on EV/2007 EBITDA of 5.5x, closer to the valuation of other Latin American telecom operators.
 

CREE Boosted by Hot LED Market

Cree, Inc. (CREE) is one of the leading producers of SiC and GaNbased LEDs. December quarter results exceeded consensus expectations on both the top- and bottom-lines. Forward guidance is for a 1% to 5% growth in the March quarter.

The global movement to energy efficient lighting is prompting lighting companies and consumers to look at other options. Therefore, lighting will be the strongest end market for CREE, likely followed by notebooks.

While new product ramp-up costs are a pressure on margins, yield improvements, increased capacity utilization, larger wafers and offshore production are positive factors. The LED market is hot, in our opinion, and the convenience, energy efficiency and eco-friendliness of LED devices should become more apparent over the next few years.

We would not be surprised if the company is the subject of a lucrative takeover. CREE shares are currently trading at a 59.7x multiple of our 2008 EPS estimate (P/E). The company is a technological leader in the market in which it operates. The potential for expansion into new end markets is substantial, and this potential is backed by an experienced R&D team.

While new product start-up costs remain a drag on margins, the company has the new-age lighting technology that should bring significant revenue growth. CREE has already started seeing some of this growth, and the recent LLF acquisition is expected to enable direct entry into the commercial and residential lighting markets.

Phillips (PHG) is investing a billion dollars in acquiring LED technology, and GE (GE) has been making several smaller bids. Consequently, we are reiterating our Buy rating on CREE shares, and raising our target price to $40 (70.2x P/E).

Brazilian Utility CPL a Buy

We rate CPFL Energia (CPL) as a Buy. The company posted solid results for the third quarter of 2007, and the outlook for the following quarters remains positive, mainly considering that rains are back to normal after a difficult period in January 2008. Additionally, the demand for electricity in Brazil has been growing, and we still have a positive outlook for the Brazilian economic environment in the short-term, despite the country's less positive domestic monetary policy.

Finally, CPL has a solid dividend payout and an attractive valuation. At current levels, CPL's ADRs are trading at 9.8x our 2008 earnings estimates, well below the industry average. We believe that Brazil's country risk and regulatory uncertainties, which are normal in Brazil, are the reason for this large discount. However, recent results were very solid, and the short-term outlook is positive, mainly now that rains are back to normal after a difficult month in January 2008.

Moreover, we believe Brazil will reach investment grade within the following 12 months, thus leading to a multiple expansion for Brazilian stocks. We continue to have a positive view on the company's medium-term outlook and the stock's dividend yield is attractive. All considered, we are rating CPL as a Buy. We see a considerable upside potential in the stock. As such, we used an earnings multiple around 12x our 2008 EPS, which is closer to the Bovespa (Brazilian benchmark) average. Our target price is $67.50.

Kimco Realty Still Shows Strength

Kimco Realty Corporation's (KIM) fourth FFO [funds from operations] came in below our estimates, although operating results were still good in the company's core portfolio. Portfolio occupancy remains high at over 96%, and we expect rate increases on rollovers to remain positive through the first part of this year. We are also encouraged by increasing contributions from KIM's other business segments, including fund management, mortgage-financing and preferred equity.

On a P/FFO basis, KIM currently trades at an 8% discount to sector averages. The company is now valued at an approximate 7% discount to our calculated NAV. There has been a broad-based sector sell-off over the past year as investors are worried about retail fundamentals in a declining economy.

We think KIM is better positioned that smaller peers as the company has a large diversified national and international development pipeline and a strong balance sheet. The company is a better defensive play in a sector that should continue to trend downward as more negative consumer spending data comes out.

KIM continues to drive FFO growth through its diverse business lines and the growing funds management business, which should hold up reasonably well despite negative consumer spending trends. We think the company will continue to exhibit positive earnings momentum and look for 6%+ FFO growth in 2007. Core portfolio occupancy remains strong, and Kimco should continue to be among the sector leaders in rent growth.

We also think the company's international operations, particularly Mexico, will continue to show outsized returns and will become a more meaningful contribution to earnings in the coming year. We are setting our six-month target price at 15x our 2008 FFO estimate, or $41 per share.

Downside for Masco Priced In

Masco Corporation (MAS) reported fourth quarter EPS of $0.19, below our estimate of $0.37, due to a higher-than-anticipated decline in key retailer sales and lower-than-expected sales volume of Installation products and assembled cabinets. The company reported a 5% decline in fourth quarter key retailer sales, which was below our forecast of a 3% decline. With declining home prices and lower mortgage equity withdrawals ahead, we expect key retailer sales to remain under pressure throughout the year 2008 as well.

Our FY08 EPS estimate of $0.88, which assumes weaker European demand, stands at the low end of management guidance. In addition, the company's guidance reflects an estimated full-year 2008 tax rate of approximately 42% to 43% (due to the U.S. tax on the anticipated repatriation of foreign earnings to utilize favorable provisions of the U.S. tax law) compared to the normalized tax rate of 36%.

The tax rate increase will reduce earnings by approximately $0.11 per common share. In addition, the company anticipates relatively higher costs for certain commodities, including copper and commodities impacted by energy costs. Nevertheless, we believe the stock price fully reflects the bad news and it offers an attractive dividend yield of over 4%. Investors should Hold shares of MAS in their portfolio, with a target price of $19.50.

Outlook Cools on Fred's, Inc.

We are downgrading Fred's, Inc.'s (FRED) shares from Buy to Hold. In light of the company reducing its EPS guidance again, soft sales trends and the company's decision to close over 10% of its stores, we no longer believe that a bullish stance on the stock is justified. We previously thought that Fred's could outperform its retail peers because of its focus on low-priced, frequently purchased, basic merchandise that consumers buy even during slower economic environments.

While we think the company's restructuring plan will eventually lead to improved profit margins, we don't expect the company to generate solid sales growth until the retail spending environment improves. Unfortunately, Fred's core customer simply has fewer dollars to spend in retail stores, and that is hurting Fred's results. The stock is trading at a reasonable valuation of about 14x our 2009 EPS.

FRED shares trade at 15.1x our fiscal year 2007 EPS estimate and 13.8x our fiscal 2008 EPS estimate. Fred's P/E ratio is in-line with its peers. Given our continued EPS estimate revisions, we no longer view FRED shares as being attractively priced. However, we think the stock looks fairly valued at current levels. Our target price is $10, which assumes the stock will track the overall market for the next six months.

Cousins Fairly Traded at $24

Cousins Properties, Inc.'s (CUZ) 4th.quarter 2007 FFO [funds from operations] of $0.14 per share was substantially below our estimate of $0.27 per share. Slower residential lot sales and lower joint-venture [JV] income contributed to the miss. We expect the slowdown in the residential segment to continue for the foreseeable future. We have lowered our 2008 FFO estimates ($1.06 per share down from $1.15 per share previously). On the positive side, overall office vacancies in CUZ's portfolio are now below 10%.

We continue to rate the shares a Hold due to an above-average yield and the company's large development pipeline. We expect earnings growth to accelerate as developments come on line and incrementally add to the bottom-line. Although, with slowing job growth and a weak economy, the suburban office sector decline could continue well into 2008.

After selling assets and realizing large gains, the company is ramping up development in an attempt to replace lost NOI [net operating income] and FFO. The stock still trades at an inflated multiple, 22.9x our 2008 FFO estimates, a 50% premium to office in the Zacks coverage universe.

Despite the premium valuation and slowdown in the residential sector, we still recommend investors hold the shares. The company is trading at a large discount to NAV [net asset valuation]. Additionally, Cousins is a skilled developer, and value lies in the company's ability to successfully finish and lease and/or sell its large commercial and residential development pipeline.

The yield is well above average, and any dividend shortfalls could be covered with asset sales, although investors should expect some type of cut in 2008. We are setting our price target at 23x 2008 FFO estimates or $24 per share.

Lowering BioSphere Estimates

BioSphere Medical, Inc. (BSMD) reported Q4 EPS that beat our estimate by a penny on revenue that was roughly lower than our forecast. The execution of BSMD's growth strategy has been driving sales growth in the high double digits over the past several years. Initiatives are fully underway to try to revive growth in the U.S. UFE [uterine fibroid embolization] market. These initiatives include an expansion of the U.S. sales force that is expected to be complete by Q108.

At its current price of $4.63 per share, BSMD is trading at 2.8x our current fiscal year revenue estimate of $30 million, which is at a premium to group average multiple of roughly 2.2x. The strong revenue growth over the past several years has been driven by the increased awareness and demand for the UFE procedure. The long-term revenue growth remains uncertain as BSMD has yet to achieve widespread market acceptance of the Embosphere Microspheres or other products and the UFE procedure.

Furthermore, BSMD began experiencing in the second quarter 2007 slower growth in the American UFE market. Initiatives are fully underway to try to revive this growth after successfully implementing portions of this plan. In addition to these initiatives, domestic growth can also find support from third party payors who adjust to the increased CMS hospital outpatient reimbursement for UFE.

The company is operating with limited sales and marketing experience, and is in the middle of an expensive and time-consuming effort to successfully develop a global marketing and sales force. We lowered our FY08 revenue and EPS estimates and initiated FY09 revenue and EPS estimates. We expect BSMD to turn profitable in 2009. We believe BSMD is appropriately valued at a price-to-revenue multiple of roughly 3.2x 2008 revenue estimate. Thus, our price target moves to $5.25.

Great Time to Buy Schering-Plough

Schering-Plough Corporation (SGP) is engaged in the development, manufacturing and marketing of pharmaceutical products around the world. The company focuses on prescription drugs, animal health, foot-care and sun-care products. Based on a successful turnaround and strong sales of key drugs such as Remicade and Vytorin/Zetia, the company should deliver the highest four-year earnings growth rate in the large-cap pharmaceutical industry.

In November 2007 Schering-Plough closed the previously announced Organon Bio acquisition for a mix of $15 billion in cash/debt/equity. Schering has a committed focus towards growing EPS through a combination of cost-cutting and top-line growth. We look forward to the first full-year contribution from Organon, and will keep our eyes peeled on how the company's late-stage pipeline progresses.

The stock has fallen about 20% since the release of the ENHANCE data. Given that we believe the market significantly overreacted to the news, this provides an opportunity to buy the shares at a discount. The stock currently trades at 13.6x our 2008 EPS estimate of $1.60, which represents a 2009 PEG ratio of 0.76x. This compares very favorably to Schering's industry peers, with average expected two-year growth rates and PEG ratios of 9.8x and 1.3x, respectively.

On a price-to-sales ratio the stock trades at only 1.9x, and this does not include Schering's 50% stake in the cholesterol joint-venture. Our Buy rating is based on the strong earnings growth and attractive valuation based on expected EPS growth of almost 18% from 2007 to 2009. We believe that Schering-Plough is fairly valued at $27 per share. We recommend investors buy the name given the potential for the headline risk related to ENHANCE to cool as well as earnings upside over the next several quarters.

Pre-Earnings, Buy American Tower

We maintain our Buy rating and the same price target for American Tower Corporation (AMT) a leading operator of wireless communications towers in the USA, Mexico and Brazil, as the company will shortly announce fourth quarter 2007 financial results.

Overall performance has been driven by substantial demand for more tower space to facilitate high-speed data services and mobile video, in particular 3G and WiMax technologies. The company continues to improve on several of its financial metric benchmarks and has sequentially outperformed its peer group on an EBITDA margin basis.

Although a substantial level of debt remains concerning, management has provided a financial outlook that its operating cash flow is likely to increase by 15% in fiscal 2008. Our long-term view regarding the wireless tower industry continues to be positive and we believe American Tower is well positioned to capitalize on emerging telecom network deployment opportunities.

American Tower is trading at 112.3x our estimated earnings for 2008, which represents a significant premium to both the forward P/E ratio for the S&P 500 and the peer group. However, we believe the share price remains supported by the strong correlation with overall demand for wireless services in the United States, Brazil and Mexico.

The company is progressing with improved free cash flow and has provided an upwardly revised forecast for 2008. Given the improved earnings opportunities for the company (EBITDA), the sustainability and recurring base of its revenue stream, and considering massive ongoing wireless data deployments, we are reinitiating coverage with a Buy rating. We set a valuation target of $48.50 based on a 2008 estimated EV/EBITDA multiple of 25x, closer to the peer group average.

Syneron Medical Deserves a Discount

Syneron Medical, Ltd.