From Standard & Poor's Equity Research
Citigroup downraded LeapFrog Enterprises (LF) to sell from hold, explaining that the company posted disappointing second quarter losses.
LeapFrog posted 41 cents second quarter losses compared to 16 cents loss in the comparable quarter.
Analyst Liz Osur says the news raises the specter of negative catalysts stemming from the company's turnaround plan. She feels the company's rationalization plan will result in a much more limited product line (i.e., reduced volumes) of low-margin products, negative revenue growth in 2007, negative sales growth in the second half of 2006, increased Research & Development, greater-than-desired inventory levels, and no share buybacks. She cut her 37 cents 2006 earnings per share (EPS) estimate to 44 cents loss, and her 45 cents 2007 EPS estimate to 18 cents EPS. She sees further downside to LeapFrog's share price and cuts her $12 stock price target to $6.