We believe Bristol is an attractive take-over candidate at this level for a larger pharma name such as Sanofi-Aventis SA (SNY) or Pfizer (PFE).

While we currently model revenues and EPS to fall about 9 percent in 2012 due to the expiration of the Plavix patent, this conservatively assumes Bristol makes no significant acquisitions to accelerate growth prior to the loss of Plavix exclusivity.

Bristol currently trades at 12.9x our 2008 forecast of $1.71. This is a significant discount to the large-cap pharmaceutical peer-group average of 13.6x. We believe the stock should be trading at a multiple at least in-line with industry peers and have a price target of $27, or 16.3x our 2008 EPS forecast of $1.66. Earnings growth over the next few years should significantly out-pace the peer-group given the re-acceleration of Plavix and the lower cost bases from the sale of non-core businesses.

Hold Semi Parts-Maker Bookham

We maintain our Hold recommendation on Bookham, Inc. (BKHM), a leading supplier of optical component solution for the telecommunications market. The company reported Q3 revenues of $59.7 million, up 1.4% quarter over quarter and 33% year over year. GAAP gross margin improved to 22.4% from 14.6% generated in Q3:FY07 but was slightly down from 22.7% recorded in the last quarter.

Going forward, the management expects to report revenues between $58 million and $63 million in the fourth quarter. Bookham has developed a diverse portfolio of products and increased its manufacturing expertise through a focused acquisition strategy and internal development effort.

But the company has been posting losses ever since its inception. Although the management has been taking steps to reduce costs and achieve profitability, the company has yet to come out of the red. Another matter of concern for the company is that it generates a significant portion of its revenues from a limited number of customers.

Although it appears that the optical component industry is back on track, companies in the sector are still struggling to establish their viability. We believe BKHM will outpace the industry and the company's valuation multiple will continue to expand.

Our sales growth assumption of BKHM hinges on the recovery of the telecom industry. Our price target of $2.50 is based on roughly 1.1x FY2008 sales and 0.9x FY2009 sales, whereas some of its peers are trading close to 1.4x, meaning there is moderate upside for BKHM even if it reaches our price target.

IPC Holdings Estimates Lowered

The first quarter earnings of IPC Holdings, Ltd. (IPCR) were substantially ahead of our expectations. The company has built a track record of strong underwriting results, while maintaining a strong balance sheet and average return on equity (ROE). We think the company's current valuation is appropriate given the high volatility in its earnings stream based on its near mono-line business model and the negative outlook assigned by A.M. We maintain our Hold rating on the shares.

The company's A rating from AM Best and S&P enables it to expand its business with existing clients and take business from competitors. The company has been diversifying its business geographically to minimize its risk exposure.

Following the 1Q results, we are lowering our 2008 and 2009 earnings expectations. Currently, IPC's shares trade at 6.2x our estimated 2008 EPS and 0.85x its book value of $33.26 per share. While the stock appears cheap at just 0.9x book value, we think the current price incorporates a modest acceleration of top-line growth next year. We note that the generous dividend yield (currently 3.1%) provides some downside cushion for total return.

Our new six-month target price of $29.75 per share incorporates a lower price-to-book multiple of 0.85x to our adjusted book value estimate of $35.00 per share at September 30, 2008. This translates to a total potential return of 10.6% over the next six-months.

Our Hold rating on the shares of this company is justified given our concerns for near-term overhangs for interest rates. In addition, the quantitative Zacks Rank for IPCR is currently 3, indicating no clear directional pressure on the shares over the near term.

Going Green at Rackable Systems

Rackable Systems, Inc. (RACK) continues to lead in green technologies for lower power consumption, high-density servers, and is gaining ground in the higher-margin storage business. Thus, we maintain a Hold rating on RACK shares.

Rackable plans to restate first quarter results, which should result in higher gross margins and a lower loss per share. However, RACK competes against much larger companies, such as Dell (DELL), HP (HPQ) and IBM

(IBM), and we believe that as energy concerns come to the forefront, the market for efficient servers will become increasingly competitive.

We do not believe that Rackable's servers contain enough proprietary technology to insulate them from price competition, and as a result, the company has had to cut prices in order to maintain volumes, resulting in falling revenue and profit margins. We believe Rackable is at a disadvantage with its small size as it will have to continue a high level of R&D investment in an attempt to differentiate itself and compete against the likes of Dell and HP.

Rackable Systems currently trades at 1.2x our 2008 revenue estimate. We do not expect the company to return to GAAP profitability in the near future, and neither do we believe that the company will return to previous margins given the increasingly intense competitive environment and the need for RACK to invest in engineering. Hence, we set a price target of $15.00, which is based on a P/S multiple of 1.3x 2008 revenue.