MRLN recently opened its industrial bank which will lower the cost of funding in future but we do not expect any impact on the earnings in the current year.
Based on our concerns, we are downgrading our recommendation on the shares of MRLN to a Sell and are also lowering our six-month target price to $7.00 per share. This price target equates to 5.4x our 2008 earnings estimate of $1.29 per share or 0.57x our estimated book value six months out (now June 2008). With no dividend to supplement the return, this equates to a 12.6% expected negative total return over the period.
Additionally, the quantitative Zacks Rank for MRLN is currently 5 (down from 3 on January 28, 2008), indicating downward directional pressure on the shares over the near term. Short interest currently is significantly up to 6.3 days, versus 9.8 days previously.
Supply Chain Issues for Terex
Terex Corporation (TEX) reported fourth quarter EPS of $1.67, above our estimate of $1.42 and the year-ago level of $0.97, amid strong demand (mainly international), higher margins, and share repurchases. Going forward, volumes are expected to remain strong due to solid international end-market demand in AWP [aerial work platforms], Mining, Construction and Crane businesses.
Nevertheless, the company is suffering from continued supply chain constraints mainly in the Construction, Cranes and Mining businesses. Our target price of $73.00 provides a return potential of approximately 7.9%. We retain our Hold recommendation on the stock. Shares of Terex are currently trading at 10.0x our 2008 earnings estimate of $6.80 per share. Historically, Terex has traded at a discount to the machinery group due to its smaller capitalization, weak balance sheet and financial leverage.
We think Terex's earnings will benefit from continued increase in sales of its mining equipment and AWP business, pricing power across most of its businesses, continued strong performance of the Crane division and lower interest expenses. However, the company continues to face supply chain constraints, and the downturn in residential construction spending in the U.S. has adversely impacted its sales growth rate. Applying a P/E multiple of about 10.7x to our 2008 EPS estimate of $6.80 is how we derive our target price of $73.00 per share.
Texas Instruments Fairly Valued
Texas Instruments (TXN) is the largest supplier of analog and DSP integrated circuits. December quarter revenue was in-line with revised consensus expectations, although the bottom line exceeded. Semiconductor revenue was flat sequentially, while Education Technology revenue decreased. The backlog declined for the sixth consecutive quarter, indicating that the company is increasingly dependent on turns sales.
Forward revenue guidance has been lowered to a -6% to -10% decline in Q1. The shares have good long-term potential, but given the uncertain macro economic situation, the valuation seems fair. Consequently, we are reiterating our Hold rating on TXN shares.
TXN shares are currently trading at a 14.9x multiple of share price to our 2008 earnings estimate (P/E). The last quarter was seasonally down, although the company continued to see growth in some of its newer higher-margin analog products. TXN is already on the way to implementing its restructuring programs, and this is expected to improve profitability. We feel positive about this stock, but note that the margins are still quite a bit lower than targeted levels. We are reiterating our target price of $31.50 (15.6x P/E), since the uncertainties of the macro economic situation reduce visibility in our opinion.
