STIFEL SAYS AMAZON.COM STOCK IS EXPENSIVE, KEEPS SELL OPINION
Stifel analyst Scott Devitt says Amazon.com's (AMZN) 11% third quarter incremental operating margins are down from the cycle peak of 11.8% in the second quarter, and he continues to expect incremental margins to normalize toward 7% over the next two years.
Devitt believes the company's fourth quarter guidance is appropriately conservative but expects the consensus may take it as overly conservative, setting the company up for disappointment. He notes that based on his estimates, the shares are expensive and trade at 38 times 2008 operating income, 30 times 2008 EBITDA, 27 times 2009 operating income, and 24 times 2009 EBITDA.
Based on his assumptions for revenue growth moderation and decelerating incremental margins, he believes the shares should be acquired at levels around 20 times 2008 EBITDA (in line with Google's (GOOG) multiple), or the low $70s, in line with Google.
DEUTSCHE BANK DOWNGRADES BROADCOM TO HOLD
Deutsche Bank analyst Ross Seymore says Broadcom's (BRCM) third quarter revenues of $950 millioin beat his and Street estimates; pro-forma EPS of $0.27 was $0.01 below his estimate, in line with the Street.
Seymore says he remains confident in Broadcom's long-term prospects and its ability to outgrow peers, but says the persistence of Broadcom's current investment stage for future growth is impacting margins and EPS severely enough to make the current valuation difficult to justify. As such, he believes Broadcom should be a core long-term holding in the semi sector, but downgrades from buy to hold pending greater visibility into when Broadcom can start monetizing its current research & development investments.
He sees $1.09 pro-forma 2007 EPS; cuts $1.35 2008 EPS to $1.14; and his $47 target to $38.
COLLINS STEWART CUTS ESTIMATES FOR ELECTRONICS FOR IMAGING
Collins Stewart analyst James McIlree says he remains on the sidelines post Electronics for Imaging's (EFII) third quarter results, which were in line with his top-line estimate but missed his bottom line by a couple of pennies.
He notes gross margin fell 60 basis points quarter-to-quarter and 120 basis points year-over-year as a greater share of sales came from lower margin inkjet market. In the fourth quarter, he says further declines are likely since the share of revenue from inkjet is expected to rise again.
He adds that EFII's diversification efforts have paid off, but he continues to believe the mature controller business will be a drag on EFII's overall growth rate. He cuts $1.40 2007 pro forma EPS estimate to $1.35, $1.50 for 2008 to $1.43. He keeps market perform rating.
JEFFERIES CUTS ESTIMATES, TARGET FOR RIVERBED TECHNOLOGY
Jefferies analyst Bill Choi says Riverbed Technology's (RVBD) $0.17 non-GAAP EPS was in-line, operating margins were flat sequentially. He believes RVBD captured some of low-hanging fruit, and now needs to increasingly invest ... in sales and marketing to drive future revenue growth. He says fourth quarter guidance of sales of $69-$71 million, non-GAAP EPS of $0.19 is in line with current consensus estimates, but believes this guidance is insufficient to support current premium stock valuation, considering prior history of guiding up vs. consensus.
Choi cuts $0.80 2008 EPS to $0.76 primarily due to higher tax rate, slightly higher operating expenses. He cuts $40 price target to $36. He maintains hold recommendation on the stock.
NEEDHAM CUTS TRIMBLE NAVIGATION TO HOLD FROM BUY
Needham analyst Andrew Spinola says Trimble Navigation's (TRMB) third quarter results were mixed, with strong agriculture revenue partly offsetting soft Engineering & Construction (E&C) revenue. He notes that Trimble indicated it saw softness in its North American E&C markets in July and August, and a rebound in September; Trimble also expects E&C to grow in 2008 at a rate roughly similar to 2007.
Spinola is skeptical about E&C revenues, which are tied to large projects and can reaccelerate that fast. He says he expects a slowdown in E&C revenue growth to weigh on results for several quarters to come, and believes the stock's multiple is likely to contract from current record levels. Consequently, he downgrades the stock and cuts $1.24 2007 non-GAAP EPS estimate to $1.23, and $1.47 for 2008 to $1.43.