While the company?s bull story is based on solid sales growth and cost controls, we note its profit margins are still thin and the company will have a difficult time producing operating leverage if the demand for IT products slows. Also, the highly competitive nature of the technology distribution business will make it difficult for Tech Data to increase its gross margins in highly competitive pricing environment.

The IT industry is mature, making it difficult for a distribution firm to grow its sales beyond the mid-single digits without the help of acquisitions. While we expect robust sales growth in 2009, we expect the company?s sales growth to fall back to the 4%-5% range in 2010. That combined with an operating margin of 1.0% produces earnings growth in the low double digits.

Tech Data Corporation shares are trading at 13.6x our fiscal 2009 EPS estimate and 12.0x our fiscal 2010 EPS estimate. This is in-line with the company?s long-term earnings growth rate of 12% and is a reasonable valuation, in our view. Our target price is $37, or about 14x our fiscal 2009 EPS estimate. We maintain our Hold rating.

Aventine Outlook Mixed on Ethanol

Aventine Renewable Energy Holdings, Inc.?s (AVR) favorable topline growth prospects stems from its ongoing capacity expansions through new plants, the recent bullishness on the energy bill for ethanol production, rising ethanol prices, an ongoing share repurchase program and high crude oil prices. These factors should help maintain the momentum of future growth.

However, like its peers, the low-cost ethanol player is facing escalating cost structure though on a lower scale on account of rising corn and natural gas prices. Such price volatility along with loss related to auction-rate securities impacted AVR?s performance in the second quarter of 2008.

Rapid ethanol supply growth continues while demand has been held back due to constraints in refineries infrastructure. Therefore, with a mixed outlook, we maintain a Hold recommendation on AVR with a six-month target price of $7.75, representing 8.8% upside potential.

The industry?s current supply & demand fundamentals are constraining the producer?s margin with high corn prices and downward pressure on the price of ethanol. Specifically, supply of ethanol continues to grow while demand is constrained by corn shortages. Year-end industry-wide capacity is likely to reach over 7 billion gallons as producers continue to rapidly build new plants. Demand, however, is constrained as many refineries lack the proper infrastructure to transport and receive additional ethanol.

Despite favorable returns and profitability during 2006-07, Aventine's long-term outlook remains uncertain. The ethanol industry has relatively few barriers to entry and is subject to corn, natural gas and oil price fluctuations.

Allscripts Positives Reflected

Allscripts Healthcare Solutions, Inc. (MDRX) reported a solid topline growth in the second quarter, increasing 16.4 percent year-over-year. Total bookings were strong at $55.9 million, up 3.5 percent year-over-year and 7.5 percent sequentially. Backlog was strong at $291.0 million, up 2 percent sequentially.

As the largest provider of electronic prescribing software in the country, the company is likely to benefit most from the recent Medicare Improvements for Patients and Providers Act of 2008 passed by the U.S. Congress. The Act, for the first time ever, provides financial incentives to physicians who adopt electronic prescribing (ePrescribing), requires adoption by 2011, and delays any reduction in fees for treating Medicare patients.

The company is presently trading at 33x our 2008 EPS estimate of $0.46. Our fiscal 2008 EPS estimate is at the bottom of the management?s guidance and in-line with the consensus estimate. The industry mean P/E is 17.2x and the comparables mean is 22.6x. We believe the current rich valuation factors in the potential benefits of the recently passed Act.

Given the company?s industry leading position, we are comfortable with a premium to the comparables of 30 percent. We have raised our target price to $13.50, still below the current market price. We are reiterating our Hold rating until further confirmation in this name?s prospects warrants a change in our recommendation.

Anesiva: Painless Going Forward?

We are pleased to see that Anesiva, Inc. (ANSV) finally launched Zingo on June 30, 2008.? We see the product as having at least $200 million potential in the pediatric market.? Upside to this forecast could come if the company can gain approval to expand the usage profile into the adult population.? This is something we see happening potentially before the end of the year.?

As such, we are big fans of Zingo and expect the stock to outperform once the market comes to grips with the product's potential. In the meantime, development plans with Adlea, a potential billion-dollar blockbuster for post-surgical pain, is progressing nicely in phase III trials. Data on Adlea should also be available before the end of the year.? Therefore, with significant catalysts ahead, we are reiterating our Buy rating.

We think things are set to turn around for Anesiva now that Zingo has launched and the Adlea phase III trials are underway.? In our view, business fundamentals are improving.? Yet, the stock has performed abysmally and the volume is anemic.? Execution in the past has been an issue, and Anesiva remains relatively unknown to Wall Street.? As such, the shares are significantly undervalued and the investment story is misunderstood.

However, a new management is in place and we believe signs point to significant improvements ahead. We think that means the shares are poised for a big run over the next several quarters as pessimism bottoms and enthusiasm around both Zingo and Adlea returns. We arrive at our $9 target by discounting our 2012 EPS estimate of $2.15, applying a peer-group average multiple of 20x, back to present day at 30 percent.