Our new six-month price target of $61.55 per share reflects a price-to-book multiple of 1.70x to our estimated book value of $36.20 per share at December 31, 2008. Given the company's current share price level, we have retained our Hold rating on the shares of Torchmark, as we do not see near-term upside catalysts to support a broadening of TMK's price-to-book multiple at this time.

In addition, the quantitative Zacks Rank for TMK is currently "2," indicating slight upward pressure on the shares over the near term. Short interest ratio is 2.1 versus 2.0 previously.

Reynolds Needs to Clear the Air

Reynolds American Inc.'s (RAI) management has achieved over $1 billion in integration cost savings and operational synergies from productivity initiatives. Although the cost savings and the new brand-portfolio strategy are contributing to earnings, continued volume declines, additional debt from the Conwood acquisition, and the class-action status of the Light cigarette suit warrant caution.

Reynolds American's stock (including the processor stock, R.J. Reynolds) has traded in a P/E multiple range of 6 to 17 over the last five years. The stock maintains a low P/E primarily due to tobacco-related litigation issues. The stock has been even pressured down to a single digit P/E during times of court case losses. Although, the first quarter was below expectations leading management to reduce EPS guidance for 2008, the second quarter was above expectations. With the stock yielding over 6%, the Hold rating is maintained.

We expect Reynolds American to trade in a P/E multiple range of 11 to 17. For the full year 2008, the management now only expects earnings to be in line with 2007 earnings. Therefore, the stock is not expected to reach 15 times 12-month trailing earnings. The target price is $57.50, which is based on 12.5 P/E multiple on 12 month trailing earnings.

Cyberonics Outlook Lowered

Cyberonics, Inc.'s (CYBX) growth expectation has been reduced from the unsuccessful attempt at gaining national reimbursement coverage for the depression indication for VNS Therapy System. Yet, it reported first-quarter EPS that beat our estimate by $0.06 on sales that also exceeded our forecast. CYBX continues to progress in its strategic priorities. To execute its depression strategy, the company continues to seek a financial partner.

At its current price of $25.10 per share, CYBX is trading at 4.9x our fiscal year 2009 revenue estimate of $137 million, which is at a premium to the group average multiple of roughly 3.7x. As evident in the stock price, CYBX continues to progress in its growth plan for the epilepsy market. At this stage, any multiple expansion may be limited. Execution risk related to CYBX's overall growth plan may limit multiple expansion. Further risk exists regarding a possible reimbursement change.

According to published proposed rates for 2009, reimbursed customers may receive lower reimbursements from Centers for Medicare and Medicaid Services (CMS) for implanting leads. Not all cases are reimbursed. Before final rates are published that is expected around November 1, CYBX has initiated an effort with CMS to address the proposed rate change. The rate change if adopted could affect according to CYBX roughly 3% of its total revenue. At roughly 5.1x our 2009 revenue estimate, our price target moves to $26.

DELL Not Preferred to HP, IBM

Dell, Inc. (DELL) posted better-than-expected revenue for the second quarter of fiscal 2009 as aggressive pricing helped drive unit sales.

As a result of this pricing, gross margins fell and EPS of $0.31 were well below our expectations for $0.36. We are concerned that Dell is returning to a period of driving share gains over profits. On a positive note, it does appear that price cuts were successful in taking some share and operating expense reductions are ahead of expectations.

Though Dell has had success leveraging its direct business model and efficient supply chain into consistent share gains, a mature U.S. PC market limits future growth prospects. Moreover, Dell has struggled to keep pace with the consumer market due to intense competitive pressure particularly in the low priced desktops and notebook market.

Dell is currently trading at 16.2x our FY2009 EPS estimate of $1.48, in line with the industry median and a premium to HP (HPQ) and IBM (IBM).' Given the company's history, we don't expect much investor interest in the stock until Dell can demonstrate that this is a profitable strategy.

Moreover, the stock is trading at a premium on a P/E basis to both IBM and HP. We therefore maintain a Hold rating on Dell's shares, and would prefer to own HP and IBM. Our six-month target price of $26.00 represents a multiple of 17.6x fiscal 2009 EPS estimate, above HP and IBM.