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Analyst Actions: Dell, PetSmart, Constellation Energy

From Standard & Poor's Equity ResearchBANC OF AMERICA CUTS TARGET, KEEPS BUY ON DELL

Banc of America analyst Scott Craig says Dell's (DELL) second quarter revenue of $16.4 billion is above his/consensus estimates of $16.04/$15.9 billion and EPS of $0.32 (excluding one-time items; including amortization) compared to his/consensus estimates of $0.36. He notes the EPS miss mostly due to gross margin shortfall (pricing, mix), higher-than-expected tax rate.

Craig believes Dell's long-term restructuring story is intact, despite near-term gross margin and operating margin issues. But he notes it's becoming increasingly obvious that the turnaround story will be lumpy.

He cuts $1.58 fiscal year 2009 (January) EPS estimate to $1.43; he sees $1.82 for fiscal year 2010. He reduces $29 price target to $27, based on a p-e of 13-15 times his calendar year 2009 EPS estimate. He maintains a buy opinion.


Goldman Sachs analyst Matthew Fassler says Petsmart's (PETM) second quarter EPS of $0.30 compares with his $0.28 forecast. He says PETM is making good on the potential for improved capital allocation and building on its decision to temper store growth and capex with sharper cuts in new units, hotels, and capital spending.

Fassler says slower growth will enable PETM to sharpen operating focus, reduce pressure on margins from high occupancy costs for new stores, and return growing free cash to shareholders. He notes PETM is capturing food price inflation, with no incremental damage to traffic, holding merchandise margins, both on food and overall.

He raises 2008 EPS estimate by $0.04 to $1.48, 2009 by $0.03 to $1.73, and 12-month target by $2 to $27. He keeps a buy opinion.


Jefferies analyst Paul Fremont says his downgrade of Constellation Energy Group (CEG) is based on concerns that CEG will come under increasing pressure to issue equity. Additionally, he anticipates reduced earnings from CEG's commodity business going forward as it sells and restructures those businesses.

Fremont says the FERC investigation into loop flows in the Lake Erie region may result in penalties and lawsuits, which may further pressure the company's trading operations.

He maintains 2008 EPS estimate of $5.55, but reduces 2009 estimate by $0.60 to $5.90 to reflect the loss of contribution from businesses up for sale, lower assumed trading and dilution from an assumed equity issuance. He reduces $71 target price to $60.

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