But the initial lukewarm response to the product -- although sales have now picked up -- failed to convince that it can remain sustainable as the primary catalyst for customers switching to AT&T Wireless.
AT&T currently trades at 13.5x our 2008 EPS estimate, which represents a discount to the forward P/E metric for the industry average and the S&P 500 benchmark. The company has a EV/EBITDA of 6.7, which is at a premium to its peer group. We maintain a valuation level above the peer comparison benchmark when comparing EV/EBITDA. Our $37.00 price target is based on the 12.5x 2008 P/E multiple in line with the industry-group average.
Value Keeps Tesoro Compelling
We are maintaining our Buy recommendation on Tesoro (TSO) shares despite continued headwinds in the shape of high crude oil prices and weak product demand. Last month, Tesoro reported significantly weaker-than-expected first-quarter losses. We believe that high feedstock and operating costs will continue to weigh on near-term margins. However, our long-term view of the business remains favorable, as margins appear to have bottomed.
Tesoro's 2007 acquisition of Shell's refinery and other assets fits well with its West Coast-focused operating base, where the refining market has above national-average gasoline demand growth. The company's improving financial health enabled the management to start returning cash to shareholders. Tesoro has roughly doubled its quarterly dividend in 2007 and has already completed more than 80% of its $200 million share buyback program initiated in late 2005.
Hence, in spite of the shares of refiners being under pressure, Tesoro's strong leverage in the West Coast market got a boost from the recent Shell refinery acquisition. Its valuation has become compelling following the recent sell-off. Our price objective remains unchanged at $40, based on a 2009 P/E multiple of 11.2x. We believe that Tesoro is better positioned than most of its peers.
Public Storage a Quality REIT
Despite a weakening economy, we are keeping our Buy rating on Public Storage, Inc. (PSA). Operationally, the owner of self-storage facilities continues to perform relatively well, and we expect moderate same-store sales growth to continue throughout the year. The company has a strong balance sheet and plenty of cash to be active in acquisitions and developments going forward.
The company is a dominant player in its sector, and with a large diversified portfolio spread across the U.S. and parts of Europe, we think PSA will fare better than smaller competitors as the world economy weakens. We expect the company to ramp up development in a competitive acquisition environment. Despite recent share price increase, the company is still attractive relative to its underlying net asset value and long-term growth prospects.
Currently the company trades at 17.1x our 2008 funds-from-operations (FFO) estimates, a 6 percent premium to office, and an 18 percent premium to self-storage REITs in our coverage universe. PSA has very low debt levels, produces plenty of free cash flow from operations, and has ample cash to be active in the acquisitions and development market.
