We have downgraded our rating to Hold and adjusted our fair-value target down from $11 to $5 per share. Acadia's cash position is solid and it is progressing in two phase III trials with its lead development compound for PDP. Thus, we see significant value in the shares at this level. However, there is a lack of catalysts until the third quarter 2009 and management credibility has taken a significant hit.

Primus Guaranty Upped to Hold

Primus Guaranty (PRS) reported a GAAP net income of $262.6 million or $5.78 per diluted share for 2Q08. The economic results for the quarter came in at $18.5 million or 0.41 per diluted share, substantially ahead of estimates, due to higher premium revenues, asset management fees and lower credit mitigation costs.

We feel that the company may be able to grow its credit protection business at attractive prices, as the credit spreads continue to widen. Based on 2Q08 results, we are increasing our FY08 and FY09 estimates to $1.72 per share and $1.80 per share, respectively, prior to the conference call. At the current price level, the shares of PRS are trading at 0.38x its 2Q08 economic book value of $10.01 per share, a 52% premium to the peer group median.

We do anticipate some expansion in the multiple as the company is expected to benefit from the widening credit spreads. Our six-month price target of $4.50 per share equates to about 0.43x our December 31, 2008 estimated economic book value of $10.40 per share and 2.6x our estimated EPS of $1.72 per share for FY08. Based on better-than-expected results, we are upgrading our recommendation on the shares to a Hold from Sell.

Interstate Hotels Stays a Buy

We reiterate our Buy rating on shares of Interstate Hotels & Resorts, Inc. (IHR) following the release of second-quarter financial results. Although in our opinion the company has made great strides in recent months, the operating environment in the U.S. lodging industry is feeling the impact of weak economic growth and financial pressure on consumers.