Patients do not require substantial pre-treatment preparation, and typically there is little to no recovery time or hospital stay associated with the CyberKnife procedure. However, profitability from CyberKnife may be under pressure from the increase in manufacturing, sales, marketing & administrative, and research & development activities.
Based on the risks to revenue growth, we expect limited multiple expansion. At roughly 2.0x calendar 2009 revenue estimate, our price target is $8.50. Our Hold rating is maintained.
Fushi a Chinese Copper Play
Fushi Copperweld, Inc.'s (FSIN) principal product, copper clad aluminum wires (CCA), are a cost-effective substitute for the single copper wire in a wide variety of applications such as coaxial cable for cable television, signal transmission lines for telecommunication networks and distribution lines for electricity.
As copper prices soar in the open market, the company's CCA product offering should see greater customer uptake. However, we expect tougher macroeconomic trends in the U.S. and postponement of telecom spending in China to have a negative impact on sales growth and margins in the near term. We maintain a Hold rating on FSIN shares. Our target price of $10.50 is based on approximately 7.0x our 2008 EPS estimate of $1.49.
For the full year 2008, management expects diluted EPS in the range of $1.40 to $1.45, based on an estimated weighted average diluted share count of 28.8 million shares. This is lower than the previous guidance range of $1.50 to $1.60. Management attributed the lower guidance to weakness in the U.S. housing market, which in turn impacts telecom demand.
At $10 per share, FSIN is currently trading at 6.7x our 2008 EPS estimate of $1.49, which is at a discount to the industry median and peer group multiple. The company has a leading position in the rapidly growing PRC market.
Micros Not Getting Big Yet
We maintain a Hold rating on the shares of Micros Systems, Inc. (MCRS). The company reported its Q4:FY08 EPS of EPS of $0.41, which beat our and consensus expectations of $0.39 and $0.38, respectively, as a $1.6 million grant from the Irish Development Agency and a minority interest true-up contributed $0.02 and $0.01 in EPS, respectively.
The 2009 EPS guidance of $1.53-1.64 on revenue of $1.075-1.100 billion in 2009 was largely in line with our and consensus expectations for $1.58 in EPS. The implied 9-12% growth is a slight decrease from the 14% organic constant-currency growth recorded in FY08. Operating margin expansion guidance of 60-70 bps would lead to the high end of EPS guidance, but we feel it is ambitious given the y/y adjusted operating margin contraction in Q4 of 120bps.
The stock is currently trading at 18.1x our revised 2009 EPS estimate of $1.58. Our current $32.00 price target equates to a multiple of 20.3x our 2009 EPS estimate. The P/E multiple is currently higher than the market multiple, and we believe, a reflection of the company's improving growth prospects in the hotel and casino markets.
However, we would like to remain on the sidelines until we have better clarity of its FY2009 growth prospects, given the end-market risks of a consumer slow-down in the US along with the meltdown of the financial markets and a slowdown in the company's core market of hotels and restaurants.
RLI Corp. Risks Fairly Balanced
RLI Corp.'s (RLI) operating earnings were $1.53 per share, well ahead of our expectations, attributed to a favorable reserve releases from prior accident years, despite property losses from floods in the Midwest. However, growth remains curtailed as premiums continue to decline due to overall rate softening, especially in the casualty segment.
Uncertainty in the economy and financial markets continued to negatively impact the investment portfolio and we remain concerned about the underlying credit quality of the municipal securities in its investment portfolio. Nevertheless, RLI's expansion drive and new product launches partially offset some of these uncertainties, hence we reiterate our Hold recommendation.
The company recently announced the formation of its newest product group, RLI Fidelity, which will focus on financial fidelity and commercial crime insurance products. In addition, RLI is looking to expand its footprint across the board and with new products in the Surety and marine businesses. As a result, the marine division reported a significant increase of 49.6% in gross premiums written for 2Q08.
In July 2008, the company has again increased its quarterly dividend by approximately 9.0% to $0.25 per share. RLI increased its previously announced stock repurchase program by $100 million to $200 million in November 2007 and repurchased 318,600 shares for a total cost of $15.9 million in 2Q08 with $40.1 million still remaining (at June 30, 2008) under its current authorization. Going forward, we think that the company will be able to sustain this share repurchase program thus enhancing the value for its shareholders.
