Nat'l Australia Bank Ests Down

We are continuing our Hold on National Australia Bank Limited - ADR (or NAB) (NABZY). NAB reported 2008 first-half cash earnings of A$2,237 million, up 8% year over year, but below our estimate despite a well-below-normal tax rate. This primarily reflected higher-than-expected loss provisions from a small number of corporate exposures. Positively, all segments posted double-digit earnings gains, due to strong cost control and improved efficiency.

We are reducing our fiscal 2008 diluted EPADS estimate to US$2.60 from US$2.70, and initiating our 2009 estimate at US$2.75. The US$798 million acquisition of South Dakota-based Great Western Bancorporation will not have a material impact on results. NAB recently increased its interim dividend 11%.

At its current price, NAB shares trade at 7% premium to the industry P/E median, based on 2009 consensus estimates reflecting NAB's above-average dividend yield. We think NAB's shares are fully valued and see limited upside. Our US$28 target price represents approximately a 10 ¼X multiple of our 2009 diluted cash EPADS estimate of US$2.75, providing a PEG ratio (P/E divided by estimated future growth rate) of 1.0X, roughly in line with the industry median.

Plains Exploration Initially a Buy

We are initiating coverage of Plains Exploration and Production (PXP) with a Buy recommendation and a six-month price objective of $84.00. Two major accretive acquisitions have given the company an impressive value proposition, growth and stable cash flows.

In 2008, we see the company growing production by approximately 50%. Record crude oil prices and favorable natural gas prices will help expand operating margins and earnings. We see the company growing earnings by roughly 170% in 2008.

PXP has a strong balance sheet with a low debt-to-market capitalization ratio. With nearly $700 million remaining on its credit facility and its cash flow from operations, the company should be able to finance its capital expenditures and working capital needs. Additionally, the company can raise capital by selling its assets. Lastly, operating cash flows have allowed the company to buy back up to $1 billion in common stock.

PXP usually has a P/E multiple that trades between 14x 18x forward earnings and an Enterprise Multiple (EV/EBITDA) that trades between 6x 8x forward EBITDA. We believe that PXP will trade around current levels as the market has priced in the growth in 08 and 09. Based off of our estimated production and commodity price assumptions, we see 2009 EPS of $5.33 per share.

A price objective of $84.00 yields a forward P/E of 15.7x and an Enterprise Multiple of 6.9x, both of which are within historical levels. Currently trading around $75 per share, this gives investors an approximate 12% return.

Cash Burn a Problem for Amylin

Amylin Pharmaceuticals, Inc.'s (AMLN) investment story is tied to the success or failure of phase III potential blockbuster, exenatide LAR. We classified the data on LAR from DURATION-1 presented at American Diabetes Association as good, but not great. Additional data from the DURATION program is expected in 2009. In the meantime, there are few catalysts and operating expenses are soaring. Valuation and mounting competition keep us at a Sell rating for Amylin.

We are surprised with the lack of expense control at Amylin. Byetta will probably be a billion-dollar product in 2010 and the company will still will not be profitable. High expenses, along with the continued disappointing sales of Byetta make the stock unattractive in our view. Byetta sales are closely tied to marketing and promotions, and given the tough competition in the type-2 diabetes market, we are unsure on whether Amylin will even get a change to ratchet down expenses and reap the full rewards of Byetta's sales.

Amylin currently trades at 21x our 2012 EPS estimate of $1.31. The 2012 multiple is a 100 percent premium to the large-cap pharma / biotechnology peer-group average of 10x 2012 EPS. We believe this premium is not warranted given significant questions that surround the future growth of Byetta. We are still at level where we believe the name is substantially over-valued. We see far better and cheaper opportunities in biotech today. Our target is $25.