Despite a few challenges ahead, including the impending influx of Depakote (for seizures) generics, we feel there's significantly more to look forward to then there is to worry about.

Maguire Ppy Headwinds Too Much

Maguire Properties (MPG) is running a deficit to free cash flow as the company is saddled with a high debt load due to heavy acquisition activity in 2007. MPG was put up for sale but found no buyer. Another offer, reportedly in excess of $20.00 per share was rejected. Most senior management has been replaced as MPG is scrambling to shore up operations.

1Q08 FFO [funds from operations] came in much lower than expected due to higher interest expense and vacancy problems, due in part to the company's exposure to mortgage lenders. Shares of the company have dropped about 75% over the past year in response to a general sector sell-off, Southern California's exposure to sub-prime lenders, and the company's enormous debt load. Cap rates are rising, and it is hard to finance large real estate deals, which will make it more difficult for MPG to unload the high priced assets that it recently purchased.

MPG is currently trading at 13.9x our 2008 FFO estimates, a 3% discount to sector averages. The company is also selling at a large discount to NAV, which we estimate at $20.00 per share. We rate the company a Sell, and barring an outright sale, we see no near term upside to the shares.

The dividend has been eliminated and the company will be running cash flow deficits for the foreseeable future. Office landlords will continue to have a difficult time as the overall US economy weakens. We are setting our target price at about 12x 2008 FFO estimates or $8.00 per share.

Electroglas Short-Term Cash Burn

Electroglas, Inc. (EGLS) is an original equipment manufacturer of wafer prober and wafer test handling systems. May top and bottom-line results were slightly below what management guided for a quarter ago. While the long-term outlook in probers for EGLS is positive, the short-term cash burn is concerning.

The firm recently signed new volume purchase agreements with Amkor (AMKR) and Broadcom (BRCM). The management has embarked on a new aggressive plan to lower breakeven to $14-$15 million (from $18-$19 million). We continue to rate shares of EGLS a Hold.

From May 1, 2006 to June 16th 2006 the Semiconductor Sector Index (SOXX) lost approximately 11.5% of its value. This was mainly due to investor worries about higher inflation and interest rates and their effect on financial securities.

In this same time frame, EGLS pre-announced a weaker performance, and therefore suffered a more substantial loss of approximately 34%. It has languished in this area for several months. While this is the type of drop that may indicate a buying opportunity we would prefer to wait until significant top-line growth and breakeven is upon us.

The shares are currently trading at a .73x multiple of our fiscal 2009 revenue estimate (P/S). We believe the stock will remain under pressure until significant orders of the new test handlers and upgrades are announced. We believe shares are fully valued and expect them to trade in-line to slightly higher than the current valuation metrics. We are setting the price target at $2.00, which corresponds to a P/S multiple of 1.0x our fiscal 2008 estimate.