Despite these positive trends, we have some concerns, including the continued weak conditions prevailing in the foodservice/food packaging division. For 2008, management expects total organic volume growth to range between 1% and 2%. In fact, the management lowered its 2008 EPS guidance to the range of $1.85 to $2.05. Even sales expectations have been lowered to 9%-12% from 10%-14% expected earlier.

Awaiting Advance Auto Improvements

We are maintaining our Hold Recommendation on automotive parts retailer Advance Auto Parts, Inc. (AAP) until costs are contained and same-store sales improve. Though it is generating topline growth by opening new stores, the company currently faces a challenging industry environment. To combat the difficult industry metrics, the company has reviewed its business strategies to drive sales, lower costs, and increase return on invested capital (ROIC). We set a six-month target price of $38.00.

The company has reviewed its business strategies to drive sales, lower costs and increase ROIC. The company's investment in the supply chain and IT systems should reduce costs through improved efficiency.

It reduced its new store guidance to 100 in 2008 from 196 stores in 2007. As many as 10-20 stores will relocate and 10-15 stores will close in 2008. AAP is keen on converting the stores to a vibrant 2010 store format by enhancing the store's appeal to consumers to push for double-digit growth. However, the company has temporarily stopped its 2010 store-remodeling program to evaluate the benefits of the remodels done so far. The company is also aggressively buying back stock.

But a sluggish economy, surging gasoline prices and weak pricing raise our concern about the company's performance in the near-term. The volatility in gasoline prices is negatively influencing the number of car miles driven and may slow sales of vehicle parts.

Currently, AAP shares are trading at 14.5x our 2008 EPS estimate of $2.62. We are impressed by the company's performance in the face of a challenging environment. The company is striving hard to increase its square footage growth and the company has healthy cash flow. However, it is witnessing rising SG&A expenses, which lead us to rate the stock a Hold with a six-month target price of $38.00.

CREE Benefiting from Hot Markets

Cree, Inc. (CREE) is one of the leading producers of SiC and GaN-based LEDs. March quarter revenue was in-line with consensus expectations, although the bottom line exceeded. Forward guidance is for 3-6% growth in the June quarter.

The company is a technological leader in the market in which it operates. The potential for expansion into new end markets is substantial, and this potential is backed by an experienced R&D team. The company has a debt-free balance sheet and generates a healthy amount of cash from operations.

The global movement to energy efficient lighting is prompting lighting companies and consumers to look at other options. Therefore, lighting will be the strongest end market for Cree, likely followed by notebooks.

New product ramp up costs will be increasingly offset by yield improvements, higher capacity utilization, larger wafers and offshore production. The LED market is hot in our opinion, and the LLF acquisition opens up new opportunity. Consequently, we are reiterating our BUY rating on the shares.

CREE shares are currently trading at a 43.5x multiple of our 2008 EPS estimate (P/E). We are encouraging investors to buy CREE shares, and reiterating our $35.00 price target, as the timeline for significant revenue acceleration has been pushed out slightly.