JP MORGAN CUTS OFFICE DEPOT TO NEUTRAL FROM OVERWEIGHT
JP Morgan analyst Stephen Chick downgrades Office Depot (ODP) on the heels of the company's third quarter earnings delay due to an internal review by Audit Committee regarding certain vendor program funds (vendor rebates). He notes he has seen other accounting issues related to vendor rebates in the past, such as with US Foodservice.
Chick says the lack of clarity regarding the issue for Office Depot and the potential level of materiality make him nervous, despite seemingly inexpensive stock price otherwise (0.40x last 12 months sales). He will revisit the stock once he has a better handle of materiality. He notes that the press release issued by the company, in the meantime, lacked information.
Within the sector, Chick rates Staples (SPLS) underweight, and OfficeMax (OMX) overweight.
RBC UPS ESTIMATES, KEEPS UNDERPERFORM ON RADIOSHACK
RBC analyst Scot Ciccarelli says RadioShack's (RSH) $0.34 third quarter EPS were better than his $0.28 and consensus $0.26 views. He says third quarter trends were very similar to what he was expecting; sales continue to decline at concerning rate, but gross margin improvements, expense reductions continue to support EPS growth.
He raises $1.60 2007 EPS estimate to $1.70, and $1.75 forecast for 2008 to $1.90. However, he thinks margin expansion will be difficult to sustain, given reductions that have already been made, and the negative sales trends. Ciccarelli believes that the shares are near fair value, and would be sellers on near-term strength in stock. He tweaks his $21 price target to $22.
JEFFERIES KEEPS HOLD ON WELLCARE HEALTH PLANS
Jefferies analyst Brian Wright says that, after federal/state raids at WellCare Health Plans (WCG), it's been reported Connecticut and Georgia are investigating WCG. Also, WCG said the SEC has begun an investigation and WCG has formed a committee to address the situation.
Wright maintains a hold opinion on the stock, noting that in the past, investigations involving companies the size and sophistication of WCG have more often resulted in fines, not the loss of the ability to provide services to Medicaid and/or Medicare beneficiaries.
However, he cuts $107 price target to $35, representing 53% probability of WCG trading at 12 times his reduced 2008 EPS estimate of $5.50 and 47% probability of the company losing contracts to provide Medicare & Medicaid benefits to customers.