Mickey D's a Buy Amid Turbulence - Analyst Blog

McDonald's Corp.'s (MCD) focus on core brands, its image make-over program, and innovative marketing campaigns have been successful. After doubling margins in its U.S. operations, the company is turning its focus to Europe and APMEA (Asia/Pacific, Middle East and Africa), where company-operated restaurant margins lag the U.S. (by 110-350 basis points in the second quarter).

Re-franchising continues to be another engine of growth, bolstering return on assets by an expected 100 basis points on a less capital-intensive business and a steady growth in royalties. Finally, we think additional margin and return on equity expansion is possible as the company leverages its general and administrative expenses through cost control initiatives and uses the cash generated from operations to retire debt, distribute dividends, and pursue share repurchases.

From 2007 through 2009, the management expects to return approximately $15 billion to $17 billion to shareholders through dividends and share repurchases. We think this stock provides relative safety and moderate growth in a turbulent environment and exposure to faster-growing international markets. We keep our Buy rating and $68 price target on McDonald's.

King a Hold, Pre-Alpharma Deal - Analyst Blog

We had a Sell rating on King Pharmaceuticals, Inc. (KG) for a significant period of time based on concerns regarding top-and bottom-line growth prospects. Thanks to increased competition, generic threats, and declining prescription trends for key products, the shares declined almost 45% during this period.

King is now looking to acquire Alpharma (ALO); this acquisition would help King expand its presence in the pain management market and could help it achieve significant cost synergies. Although ALO has rejected the offer, King intends to enter into further negotiations with ALO and still hopes to close the deal by year-end.

In the meantime, we remain concerned about the long-term fundamentals of King. Although our current rating is Hold, the approval of experimental pain drug Remoxy, potentially later this year, would be a major positive for the company.' Meanwhile, King is set to file two NDAs for pain drugs Acurox and CorVue by year-end, but we do not expect significant contributions from these products, assuming they are approved prior to 2011.

Based on our financial model, we see a 5-year EPS CAGR of -16% and believe that most of the negative news associated with the stock is factored in the current share price.' Approval and launch of Remoxy, Acurox and CorVue could help turn things around in the years to come.' Our target price of $12.50 is based on 11x our 2008 EPS estimate of $1.16.

PACCAR Suffering U.S. Slowdown - Analyst Blog

PACCAR, Inc. (PCAR) is benefiting from rising prices and increasing market share, along with strong growth in Mexico and Australia. However, a downturn in the U.S. leads us to rate the stock a Hold, with a target of $44.

Average transaction prices are rising about 5% in both North America and Europe due to the increased emission content. The fastest growing businesses of the company are PACCAR Parts and PACCAR Financial Services. With PacLease in Europe, the company expects to see continued Financial Services growth in Europe. The company expects 2008 industry sales in Europe to be at a record of 350,000-360,000 units.

As of June 30, the company repurchased 5.62 million shares of its common stock for $262.5 million under its existing $300 million buyback program. Recently, it approved the repurchase of an additional $300 million of its common stock.

However, truck retail sales during the first half of the year dampened due to the increase in diesel prices along with the depressing housing market scenario and lower auto production. The company lowered its Class 8 retail sales expectation from 175,000 215,000 trucks to 150,000- 165,000 trucks for 2008. Further, PACCAR faces strong competition from its three principal competitors, Navistar and Daimler and Volvo, in the U.S. and the Canada truck market.

Hurray Gets Polite Applause - Analyst Blog

Hurray Holding Co., Ltd. (HRAY) declared second-quarter financial results slightly below our expectation. The company stated that its revenue was impacted by earthquakes in China during May. The management announced that they have stabilized the WVAS business, but we remain concerned that this sector may not be able to contribute meaningfully over the near-term due to strict regulatory policies.

The financial outlook for the third quarter also remains tepid. However, Hurray has a strong financial position with 3.33/diluted share of net cash.