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Analyst Comments: United Thera, Genta, Visteon, Watsco, Autonation, National Semi, Saks, Lehman, Joy Global, Nuvelo, 3D Systems, Suntech Power, Dassault, Cell Therapeutics, Analog Devices, Energy Transfer, General Growth
By: Zacks Investment Research   Wednesday, August 20, 2008 4:03 PM
Symbols: ADI, AN, BBT, CTIC, DASTY, ETP, GGP, GNTA, JOYG, LEH, NSM, NUVO, PDE, SKS, STP, TDSC, UTHR, VC, WSO
It also raised its photovoltaic (PV) product shipment target for the year.

Suntech is currently a Zacks #3 Rank company with stagnant earnings estimates for this year. However, underscoring the potential for STP specifically and alternative energy companies in general, analysts currently expect next year's EPS to be approximately 63% better than this year's. In the interim, though, STP's solid second-quarter performance might be enough to convince some of the 15 covering analysts to give its earnings estimates a boost.

Dassault Trades within Fair Range

Dassault Systemes (DASTY) reported revenues below our estimates for the second quarter of 2008 but matched our earnings expectations.

It continues to forge strategic alliances and partnerships to stay ahead of competition. Dassault is a proven leader in its field and garners a high price-to-earnings multiple. At 22.7x our 2008 earnings estimate or 20.5x our new 2009 estimate, the company is priced around 2.0x to 2.2x its long-term growth rate.

We continue to rate shares of Dassault Systemes a Hold, and have tweaked our price target to $63.75 over the next six months, as we continue to believe the company should sell for 24.2x our new 2008 earnings estimate of $2.63 per share, which we have reduced after its second quarter results due to improvement at the gross margin level and after adjusting for our revenue & currency outlook.

We use US GAAP as opposed to Non-GAAP earnings, as we believe that stock-based compensation is a part of doing business and should be included in the company's financial results. We will have a reasonable comparison for 2008 and 2009. We also believe that since the company has taken on acquisitions as a normal part of business, amortization of these intangibles becomes a cost of doing business as well. We expect DASTY to continue to raise its payout ratio slightly to 30% for 2008 and beyond.

Cell Therapeutics Must Raise Cash

Cell Therapeutics Inc.'s (CTIC) recent acquisition of Zevalin will generate revenue for the company and prepare the company for the future launch of other cancer products. Two pipeline products, Xyotax and Pixantrone, account for the late-stage oncology focus. We are optimistic about Cell Therapeutics' future; however, we are very concerned with its cash position.

The company is under great pressure to raise additional cash to fund its operations. It may need to tap the capital market as soon as in the third quarter to raise funds. We have seen this in the recent past. Cell Therapeutics has continued to issue notes and shares to raise funds for its operations which have led to massive dilution of its existing shareholder base. We believe this trend will continue in 2008 and beyond.

Although Zevalin sales may pick up steam in 2009, it will only break even in 2008. However, with the expansion of sales and marketing forces for Zevalin, cash position will further deteriorate. Even with the close of some of the key clinical programs, the company is still under great pressure to raise additional capital to fund its operations.

We believe either Xyotax or Pixantrone may not receive outright approval from EMEA (Europe, Middle East and Africa) or the FDA. We set our price target of $0.50, which corresponds to a market cap of $70 million. We believe the risk/reward file for the company is balanced right now and therefore, maintain our Hold rating on the shares. Its shares will trade sideways until additional catalysts kick in which will not happen until 2009.

BB&T Estimates Chipping Away

BB&T Corporation's (BBT) 2Q08 diluted operating earnings came in at $0.69 per share, a penny ahead of consensus.

The results were supported by 11 bps sequential expansion in the net interest margin and strong growth in fee-based income. While the loan growth was healthy, non-performing assets and net charge-offs rose sharply due to further deterioration in the residential real estate markets.

After reviewing the results, we are moderating our FY08 and FY09 EPS estimates to $2.82 per share and $3.16 per share from $3.01 per share and $3.25 per share, respectively. Though the company is in somewhat better position than many of its peers due to its diversified revenue base, strong capital structure and impressive loan and deposit growth; continued deterioration in the housing markets will keep the credit related costs high through FY08 and a part of FY09.

BBT currently trades at 10.4 times the consensus forward estimate, a 22% discount to the peer group median. On a price-to-book basis, the shares are now trading at 48% premium to the peer median, versus 29% premium earlier. Relative pricing continues looks attractive on a P/E-to-growth (PEG) basis, using the consensus forward estimate and the consensus long-term growth rate. BBT's PEG ratio is 1.58, a 25% discount to the 2.10 median for the peer group. On a price-to-book basis, the premium of 48% also looks good, given a ROE of 103% above median. Our six-month price target of $27.50 per share equates to 9.8 times our 2008 EPS estimate. The company has increased its dividend for 3Q08 to $0.47 per share. With the $1.88 per share annual dividend, this target price implies about 3.6% expected total return over the period. We are thus keeping our rating unchanged at Hold.

ADI Slightly Misses; Shares Down

Analog Devices (ADI) recently reported fiscal third-quarter earnings per share and revenue that improved upon year-earlier results; however, shares of the company have slumped by 8% Wednesday.

Yesterday, the semiconductor company announced EPS from continuing operations of 44 cents, marking an advance from the previous year's 38 cents. But the result fell short of the consensus by a penny. Likewise, revenue advanced 7% from last year, but was just below what some analysts were expecting.

For the fourth quarter, ADI expects EPS from continuing operations between 44 cents and 46 cents. At the moment, the consensus estimate is 46 cents.

ADI is a Zacks #3 Rank company with earnings estimates for this fiscal year, ending October 2008, up only a penny in the past month. But analysts do expect next fiscal year's EPS to grow almost 14% from this year. With 20 analysts covering the company for this fiscal year, the next few days will show whether or not today's share price drop was exaggerated.

Energy Transfer Estimates Raised

Energy Transfer Partners, L.P. (ETP) posted solid operational results on the back of rising demand for gas transportation capacity out of its Barnett Shale and Bossier Sands pipeline networks. Revenue was up 55% to $2.65 billion, while EBITDA rose 19% to $292 million.

Importantly, the partnership announced a 10.9% year-over-year increase in quarterly distribution to the annualized run rate of $3.575 per unit. We estimate that Energy Transfer can sustain distribution growth of around 10% annually over the next few years, driven by the completion of a broad array of intrastate and interstate organic growth projects. We are reiterating our Buy rating, while raising our estimates.

Energy Transfer is a premier Master Limited Partnership (MLP), with strong distribution-growth prospects on the back of a long pipeline of organic growth projects and a diversified asset base. A number of acquisitions over the last few years and ongoing organic growth projects have enhanced the partnership's distribution-growth prospect significantly.

New build and expansion projects will continue to be driven by producer and consumer demands for greater deliverability and expanded market access. The partnership increased its second-quarter distribution by 10.9% year-over-year to $0.89375 per unit. Given its diversified business mix and comfortable distribution coverage ratio, we believe the partnership can easily maintain a distribution growth rate of around 10% annually over the next few years.

General Growth Worries Overblown

General Growth Properties (GGP) is the second largest shopping center owner, manager, and developer in the US. Currently, the company owns and manages a portfolio of more than 200 regional shopping malls in 44 states.

Despite weakening consumer spending patterns, operations held up relatively well in the 2nd quarter. The company reported solid increases in SS NOI (same-store net operating income)'and overall portfolio occupancy. Shares of GGP have fallen over 40% in the past three months. There has been some speculation that GGP will not be able to refinance all of its near term debt.

We think this is overblown, and GGP is not at any risk of default on any of its loans. The value of the company's real estate is well in excess of its debt and the company owns quality malls with stable cash flow. On a price/FFO (funds from operations)'basis, GGP now trades at a 42% discount to its peer group average. In addition, the stock is valued at a nearly 40% discount to our estimated NAV (net asset valuation).

We would not be sellers at this low valuation, although retail conditions will get worse through the end of 2008 and high end malls will have difficulties as consumers opt for big-box discount retailers. In addition, near term refinancing risk will continue to weigh on the shares. We are changing our recommendation Hold and are setting our price target at $26.00 per share or approximately 8x 2008 FFO estimates.


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