Jefferies & Co. upgrades to buy from hold

Jefferies analyst Paul Clegg upgraded EnerSys shares on May 15 after shares of the industrial battery maker fell to what he considers an attractive price. Shares have tumbled since the company reported a sharp drop in its preliminary fiscal fourth-quarter earnings on May 13. Clegg believes the company's recent decline in order volumes has come to a stop. That, along with ongoing cost cuts, will benefit the company in future quarters, he said.

Clegg raised his price target for EnerSys shares to $18 from $11.

FirstEnergy Corp. (FE)

Barclays downgrades to equal-weight from overweight

Barclays analyst Gregg Orrill said on May 15 the Ohio Commission announced an auction result of $61.50 per megawatt-hour [MWhr] for power from June 2009-May 2011. Orrill noted that by adjusting to exclude transmission and line loss, he gets $54.50 per MWhr vs. his $64.50/MWhr forecast, which represents an earnings impact of -$0.60 per share impact. He believes competition had more excess volumes due to the recession and that he overestimated the risk premium.

The analyst cut his $4.10 2009 EPS estimate to $3.50, his $4.10 2010 forecast to $3.50, and his $5.10 2011 projection to $4.50. He also cut his $52 price target to $44.

Watsco Inc. (WSO)

KeyBanc Capital Markets reiterates buy

A recently announced joint venture between Watsco Inc. and Carrier to sell air conditioning and heating equipment will boost revenue and profitability by improving parts distribution and cutting costs, KeyBanc Capital Markets analyst Jeffrey D. Hammond said May 15. Hammond said the venture, Carrier Enterprises LLC, is a "game-changing acquisition" by Watsco, a Coconut Grove, Fla.-based distributor of air conditioning, heating and refrigeration equipment. Watsco announced earlier in May it would buy a 60% interest in the venture for an undisclosed amount of cash and Watsco stock and a contribution of 15 locations, with options to buy more of the venture in future years. The venture with Carrier, a subsidiary of Hartford, Conn.-based conglomerate United Technologies Corp. (UTX), will operate 110 locations in 20 states and Puerto Rico, the Caribbean and Latin America.

After meeting recently with Watsco executives, Hammond said he is confident the venture will "be transformational and presents a sizable opportunity for value creation." The joint venture provides a "clear path to top-line and margin expansion amid what will likely be a recovery in residential markets over the next several years" and potential for "meaningful earnings growth," he said in a note to investors. Watsco intends to expand the distribution of parts, a high-margin operation, through Carrier Enterprises from about 10 percent of sales to about 36 percent, resulting in rising profitability, he said.

Hammond reiterated his $58 price target on the stock. Based on what he sees as early signs of seasonal improvement, a benefit from high efficiency products and cost savings, Hammond reiterated his 2009 EPS estimate of $1.50.

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