Reddy's to Hold
Zacks senior pharmaceutical industry analyst Jason Napodano, CFA has recently downgraded the ADS of pharmaceutical company Dr. Reddy's Laboratories, Ltd. (RDY) from a Buy to Hold. Here are some of the reasons why:

'Dr. Reddy's Laboratories, Ltd. is a global pharmaceutical company located in Hyderabad, India. RDY produces active pharmaceutical ingredients (API), finished dosage forms, and branded and generic pharmaceutical products for the global market. Fiscal 2007 was a very strong year with the company witnessing both top- and bottom-line growth. Unfortunately, the lack of significant generic product launches, intense pricing pressure in the generics market, and declining revenues from the Mexico CPS and betapharm businesses have taken a toll on the company's performance in fiscal 2008.

'We believe these issues, along with the lack of significant near-term catalysts, will hamper the company's performance in the coming quarters. We are downgrading our recommendation on Dr. Reddy's from Buy to Hold. The stock had an impressive run over the past couple of years and we had a Buy rating on the stock during this period.

'Fiscal 2007 was an exceptionally strong year with the company posting strong top- and bottom-line growth on the back of robust generic product sales. However, fiscal 2008 is proving to be a tough year for the company with results for the first nine months of the year coming in well below expectations.

'The company took a $60 million amortization charge in the third quarter of fiscal 2008 related to the betapharm business and reported a loss of $0.13 per ADS. The stock fell 9.5% following the release of third quarter results and we believe the above-mentioned issues will continue hampering the company's performance in the coming quarters.

'Moreover, we do not see any catalysts that could drive the shares in the near-term. As such, we recommend a Hold rating on the stock with a price target of $15.50. Our price target is based on a forward multiple of 24.6x our projected 2008 EPADS of $0.63.'

Sonic Foundry Found Sagging

Zacks senior information technology analyst Steve Biggs, CFA has recently downgraded the shares of software company Sonic Foundry (SOFO) from a Buy to Hold. Here are some of the reasons why:

'Sonic Foundry appears to have lost significant traction in the corporate market, as indicated by pre-announced Q1 results for revenue of approximately half our estimate and a loss per share of 10 cents. We believe SOFO maintains a strong position in education markets, where it will now focus. However, with this loss of revenue, we now expect the company will need to raise cash before the end of fiscal 2008 in September, which could be difficult given the company's sagging stock price.

'Although this has been compounded by a weak economy, the recent shortfall highlights the volatility of revenue from recorder sales. Until SOFO's installed base grows large enough to provide a higher portion of revenues from services, volatility will likely continue. With current cash levels, our estimates indicate that Sonic Foundry will need to raise capital before the end of fiscal 2008 in September in order to fund operation. Without a recovery in its stock price, this could be expensive capital.

'In the comparable group, price-to-sales on current year estimates in the group range from 4 to 8 with a median of 4.1. Applying the mean multiples to SOFO's revenues, we arrive at $1.23 on sales per share of $0.30. Based on these valuations, SOFO should trade between $1.23 and $2.00. However, we believe there is significant risk associated with the shares given that equity holders could be diluted by future capital raising initiatives. We therefore discount our valuation to account for risks and set a six-month price target of $1 and downgrade SOFO shares to Hold.'

Results Help Smith Int'l Stay a Hold

An update has recently come out on Smith International (SII), in which Zacks petroleum sector analyst Sheraz A. Mian is restating his Hold rating on the company. We excerpted the following details:

'Smith International reported weaker-than-expected fourth-quarter 2007 results, primarily due to the flat U.S. offshore market. On a year-over-year basis, revenue and earnings grew 14.9% and 16.8%, respectively, driven by higher oilfield segment business volumes in the Eastern Hemisphere and Latin America. While we continue to expect strong revenue and margin expansion, aided by demand acceleration, price increases, and cost discipline, we believe that current valuation already discounts these positives, thereby leaving our Hold recommendation unchanged.

'Smith International shares are trading at a premium to the peer group, based on most conventional valuation metrics. We believe that revenue growth and margin expansion prospects stemming from the company's cyclical leverage are already reflected in current valuation, offering limited upside from the current levels. As such, we are maintaining our Hold recommendation and reducing our price objective ($63 vs.