Although the company's Chemicals division appears to be robust, there is little chance of margin improvement. The acquisition of ICI has left a $19 billion pension fund liability for Akzo Nobel.
Currently, Akzo Nobel is trading at 10.3x our 2008 earnings estimate of $6.48 per ADR. Its continued efforts at cost control, aimed at offsetting the present economic challenges, make us believe that it deserves to trade at a higher P/E multiple. However, the higher material costs and increased R&D expenditure are two factors that will weigh on the stock's performance in the near term.
American Public Still a Newbie
American Public Education, Inc. (APEI) has a unique franchise of providing online education to the military, public service, and civilian markets.
Revenues have grown at a 45% five year compound annual growth rate (CAGR) and revenue growth accelerated to a 73% rate in 2007 with the certification to participate in federal student aid programs under Title IV with classes that began in late 2006. If the company fails to achieve a similar growth rate in the future, the stock's price may decline dramatically.
Competition in the postsecondary education market, especially in the online education market, is highly fragmented and intensely competitive. Some competitors have substantially greater name recognition and financial resources than American Public Education, which may enable them to compete more effectively for potential students, particularly in the non-military sector of the market. However, given the stock's lofty valuation and more difficult year-over-year comparisons, the Hold rating is maintained.
American Public Education has only seven months of trading history. The stock has traded in a high P/E range of between 44 and 100. The company is currently selling at 49.1 times trailing 12 month EPS, reflecting its revenue growth profile. The target price is $46.25, which is a 65 P/E multiple on 12-month trailing earnings.
Growth Potential Big for El Paso
We are upgrading premier pipeline operator El Paso Corp. (EP) from a Hold to a Buy based on the quality and growth potential of its two core business segments. EP boasts an industry-leading project backlog with exposure to major consuming markets and an impressive growth profile relative to its peers.
Its exploration and production (E&P) business has taken large strides to solidify its position as a low-risk, high-growth operator onshore the U.S.
