Peabody Energy, Arch Coal
Citigroup upgrades to buy from hold
Citigroup analyst John Hill says the recent sell-off in coal stocks in response to a downtick in European spot prices is overdone. Hill says the sell-off is profit-taking amid a deteriorating economy, and doesn't take into account a structural change in the coal market, where isolated regional markets are linking up and creating a global market for coal. Thinks this market will be demand-driven, vs. supply-driven, with mine shortfalls, transport constraints, thin stockpiles, and voracious demand from Brazil, Russia, India, and China keeping prices high for some time.
Against this backdrop, the analyst upgraded Peabody Energy (BTU) and Arch Coal (ACI) to buy from hold; he maintains hold ratings on Alpha Natural Resources (ANR), CONSOL Energy (CNX), Foundation Coal (FCL), and Massey Energy (MEE).
JPMorgan reiterates underweight
JPMorgan analyst Jeffrey Zekauskas says WD-40's (WDFC) third-quarter EPS from operatrions of 49 cents compares with 44 cents last year and his 46 cents estimate, with the difference from his estimate due primarily to lower than expected advertising and promotion expenses. Zekauskas notes new fiscal 2008 (Aug.) EPS guidance of $1.78-$1.85 vs. previous $1.80-$1.90 implies fourth-quarter EPS of 42 cents to 49 cents. He believes the sharp rise in the cost of key raw material inputs, including solvents, base oil, steel, and plastics, could lead to margin compression. The analyst notes WD-40 shares trade at an enterprise value/EBITDA multiple of 9.9x on his fiscal 2008 EBITDA estimate vs. peers that trade at average of 7.0x. Zekauskas believes the stock will trade flat to down due to lower fiscal 2008 EPS guidance and a challenging raw materials outlook.
Needham downgrades to hold from buy
Nvidia (NVDA) cut its second-quarter revenue view. Needham analyst N. Quinn Bolton says the factors behind the company's second-quarter pre-announcement are likely to persist for several quarters, in his view. Specifically, he sees a more challenging pricing environment, higher competition in the performance GPU segment and lower gross margins. Bolton cut the firm's second-quarter revenue and non-GAAP EPS estimates to $905 million and a 13 cents loss from $1.1 billion and 34 cents EPS; for fiscal 2009 (Jan.), Bolton sees $4.08 billion in revenue and 57 cents EPS, vs. $4.67 billion and $1.52 before. Bolton says that while the stock is down meaningfully after the preannouncement, it hasn't yet reached former trough levels. The analyst encourages investors to move to the sidelines to await more clarity on how the competitive environment and pricing will affect future revenues and margins.