S&P Downgrades Jackson Hewitt to Hold

Analyst Esther Kwon notes complaints of errors made by the tax preparer's franchisee. Plus: comments on Pacer International, Bank of America, and more

Jackson Hewitt (JTX)

Cuts to 3 STARS (hold) from 4 STARS (buy)

Analyst: Esther Kwon

The U.S. Justice Department has filed suit against a Jackson Hewitt franchisee that operates about 2% of total Jackson Hewitt locations. While the complaints are limited to the franchisee, who is responsible for errors made by its own offices, we think there's been some damage to the brand, which may impact customer acquisition and retention. With two weeks remaining for tax season, we are keeping our fiscal year 2007 (Apr.) earnings per share (EPS) estimate, but trimming fiscal year 2008's to $2.11 from $2.22. We are cutting our 12-month target price to $31 from $38.

Pacer International (PACR)

Cuts to 2 STARS (sell) from 3 STARS (hold)

Analyst: Jim Corridore

Pacer International expects 2007 EPS of $1.50 to $1.60, well below our $2.00 estimate. The company also announces a $100-million stock repurchase and a restructuring designed to improve profitability, cut costs and improve operations. Given Pacer International's inability to hit revenue and earnings targets for well over a year, we lack faith in its ability to deliver improved results. We are cutting our 2007 EPS estimate to $1.50, and our 12-month target price to $23 from $30, 15 times our new 2007 EPS estimate, below peers to reflect our worries about Pacer International's execution and financial performance.

Bank of America (BAC)

Maintains 5 STARS (strong buy)

Analyst: Frank Braden

According to an unconfirmed report in the Wall Street Journal, Peter Scaturro will step down this summer as CEO of U.S. Trust Corp. Mr. Scaturro was slated to lead the combined U.S. Trust/Private Bank operations following Bank of America's acquisition of U.S. Trust. Although we expected the company to have difficulties attempting to integrate the two cultures, we view the loss of Mr. Scaturro as a set-back in the successful combination. Bank of America had already delayed the expected close of the pending acquisition from March 31 to the early third quarter.

Walt Disney Co. (DIS)

Maintains 5 STARS (strong buy)

Analyst: Tuna Amobi

Walt Disney signs a multi-year pact with Time Warner's (TWX) Time Warner Cable (TWC), including retrans for ABC stations, for a broad array of standard/High Definition content from brands like ESPN, the ABC Family and Disney Channel on Time Warner's linear/VOD platforms. We see this pact with the 2nd largest U.S. cable operator as a key milestone, on the heels of a similar deal last Nov. with the largest cable operator Comcast (CMCSA). Terms were not disclosed, but we see steady but somewhat moderating mid- to high single-digit growth long term in U.S. affiliate revenues.

Best Buy (BBY)

Reiterates 4 STARS (buy)

Analyst: Michael Souers

Feb. quarter EPS of $1.55 vs. $1.29 beats our estimate by $0.05. Impressive comp-store sales growth of 5.9% was fueled by strength in flat-panel TVs, video gaming hardware and notebook computers. We see revenue growth slowing to about 10% in fiscal year 2008 (ending Feb.), despite the planned opening of 130 stores. We also forecast expense leverage offsetting expected gross margin weakness, which is attributable to product mix and declining prices. We are maintaining our fiscal year 2008 EPS estimate of $3.17 and are setting fiscal year 2009's at $3.62. Our target price of $63 is about 20 times our fiscal year 2008 EPS estimate.

Circuit City (CC)

Reiterates 3 STARS (hold)

Analyst: Michael Souers

Excluding one-time charges, Circuit City posts fourth quarter EPS of $0.59 vs. $0.85, $0.02 below our estimate. Revenue growth of 0.6%, including a comp-store sales decline of 0.5%, fell shy of our estimates, and we were disappointed with lackluster results in TVs given the overall industry growth in that category. Despite expectations of modest cost reductions, we expect further gross margin compression to occur. As a result, we are cutting our fiscal year 2008 (ending Feb.) operating EPS estimate to $0.83 from $1.01. We are also setting fiscal year 2009 at $1.03. We are lowering our target price by $3 to $22.

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