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Wachovia Cuts ADVO to 'Hold'

Wachovia cut ADVOo (AD) to hold from buy.

Analyst Asa Graves says he was looking for $0.65 earnings per share from the direct marketing company. He notes last week, he cut the fourth-quarter revenue estimate to $288 million; and said revenue trends during the quarter were lumpy. What he missed was the extreme lumpiness and the degree of the associated effect on margins. Graves cut the $2.29 fiscal 2002 (Sept.) earnings per share estimate to $2.21, and cut the $2.55 fiscal 2003 earnings per share estimate to $2.39.

Graves still thinks Advo is doing a good job in a very tough environment, and that management is taking steps to position the company to benefit from strong operating leverage in the future. While the moves should provide better revenue growth and stability, Graves thinks the next few quarters will probably remain lumpy.

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