The merger with Telemar is very positive, and the voluntary public tender offer will create a more positive environment for the stock in the very short term.
BRP is trading at 9.5x our 2008 EPS estimate, below the industry mean and median, and an enterprise value to EBITDA (a more common valuation metric for the telecom industry) of just 3.0x our 2008 estimate. The EV/2008 EBITDA valuation remains well below the industry mean, and is close to the low point of the historical range of 3.0x to 6.0x for most of the wireline Latin American telecom operators.
Additionally, BRP is trading at just 0.8x its price/sales ratio, well below the industry mean and also below other Latin American telecom operators. We think the stock is trading at a highly attractive valuation. Our target price is US$90.00, which is based on an EV/2008 estimated EBITDA of 3.8x, close to the industry mean.
Human Genome Risks Balanced
Human Genome Sciences, Inc. (HGSI) is a biopharmaceutical company focused on discovering novel protein and antibody drugs through gene-based research and albumin fusion technology. The company has two candidates in late-stage development.
Albuferon is in phase III studies for hepatitis C and LymphoStat B is in phase III trials for lupus. Both candidates have potential to become blockbusters, while we see LymphoStat B is a higher risk program. We believe the risk/reward is balanced for HGSI at this point. Therefore, we maintain our Hold rating for HGS. Our six month price target is $7.5.
The HGS clinical development pipeline includes drugs to treat such diseases as hepatitis C, lupus, anthrax disease, cancer, rheumatoid arthritis and HIV/AIDS.
Given the company's current drug development status, it is unlikely that the pipeline drugs (except anthrax drug ABthrax) would hit the market before 2009, even if the products make progress in clinical developments as expected. And until 2010 when the most promising Albuferon is introduced, HGSI will have to depend on partners like GlaxoSmithKline (GSK) and Novartis to offset its substantial operating loss. This is a concern, as it limits sources of revenue and creates significant operating loss.
Even then, we believe Albuferon is likely to face stiff competition from Schering Plough's (SGP) PEG-Intron and Roche's Pegasys. It will also face competition from Vertex Pharma's (VRTX) Telaprevir, a protease inhibitor under last stage development.
However, upside potential may come from the phase III data for Albuferon with superiority over Pegasys which may translate into initial rapid sales ramp. Downside risks may come from any failed phase III trial related to Albuferon and LymphoStat B.
Exar Better Over Long Term
Exar Corp. (EXAR) has just completed a merger with Sipex, which will significantly reduce margins.
