Quest Software (QSFT ) : Cuts to 3 STARS (hold) from 4 STARS (buy)
Analyst: Zaineb Bokhari
Quest shares have risen about 13% so far in November and are trading modestly above peers based on their price to earnings ratio. We continue to forecast solid growth for both the company's database management products and Microsoft's (MSFT ) Windows Management products. We see recent acquisitions driving 2005 revenue growth to nearly 20%, but we see this growth moderating to about 11% in 2006. Our operating earnings per share estimates are unchanged at 62 cents and 73 cents for 2005 and 2006, respectively. Our 12-month target price remains $17, based on a P/E-to-growth of 1.25 times our 2006 estimate.
VCA Antech (WOOF ) : Cuts to 3 STARS (hold) from 4 STARS (buy)
Analyst: Michael Souers
VCA Antech shares have risen nearly 20% over the past month; well over 40% in the past 12 months. While we remain strong advocates of the company's business model and underlying industry fundamentals, VCA Antech shares now trade at about 26 times our 2006 earnings per share estimate of $1.08. We are increasing our 12-month target price to $30 from $28. However, we would hold VCA Antech shares, as we believe the company's strong growth potential is already factored into the share price.
Allegheny Technologies (ATI ): Cuts to 3 STARS (hold) from 4 STARS (buy)
Analyst: Leo Larkin
Our downgrade is based on valuation. We still project earnings per share of $3.17 in 2005 and $3.35 in 2006 and we continue to view the company as a special situation turnaround. While leverage remains high, Allegheny has no major debt coming due until 2011. We see the company benefiting from consolidation in the stainless steel industry and an upturn in the aerospace, mining and power industries. We are keeping our target price at $35. With just 8% upside to our target price, we would not add to positions.
Mercantile Bankshares (MRBK ): Cuts to 3 STARS (hold) from 4 STARS (buy)
Analyst: Christopher Muir
Since late September, shares of Mercantile Bankshares have risen about 11.3% compared to an 8.3% increase in the S&P 500 Regional Banks index. While we still view Mercantile Bankshares's fundamental outlook as positive, we think the current share price fairly reflects the company's earnings per share growth potential. We anticipate a slight increase in net interest margin and good growth in non-interest income during 2006. We are maintaining our target price of $63 and our 2005 and 2006 earnings per share estimates of $3.36 and $3.83, respectively.
Merck (MRK ) : Maintains 3 STARS (hold)
Analyst: Jeffrey Loo, CFA
Merck announced initial steps in a global restructuring program where it plans to eliminate 7,000 positions, or 11% of its workforce, by 2008 and close five manufacturing plants. The company expects these moves will save a total of $3.5 billion to 4.0 billion in 2006 to 2010. We expected these cuts and are not surprised by their magnitude, as we believe Merck faces major challenges over the next several years, including ongoing Vioxx litigation and with Zocor, its largest selling drug with about $4.5 billion in sales, coming off patent protection in 2006. We see a 40% to 50% decline in Zocor sales in 2006.