S&P Cuts Pacific Capital Bancorp to Hold

Analyst Stuart Plesser notes the company's exposure to tax fraud. Plus: comments on Centennial Communications, Shaw Group, and more

Pacific Capital Bancorp (PCBC)

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

Analyst: Stuart Plesser

We have grown concerned about Pacific Capital Bancorp's exposure to fraudulent tax preparation through its refund anticipation loan program. It has disclosed that it has roughly $6 million of these loans outstanding to customers whose tax returns were prepared by tax offices subject to lawsuits and that it is taking a reserve against the full balance. As a result, we are lowering our 2007 earnings per share (EPS) estimate by $0.08, to $2.37. We are also lowering our 12-month target price by $4 to $33, 14 times that estimate, and a discount to peers justified, we believe, by Pacific Capital Bancorp's riskier business profile.

Centennial Communications (CYCL)

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

Analyst: Todd Rosenbluth

Posts Feb. quarter breakeven vs. loss of $0.03, ahead of our $0.01 loss projection. While revenues were helped by stronger U.S wireless operations, we are concerned about weaker growth in Puerto Rico, which led to greater pressure on EBITDA. We think modest EBITDA growth and deleveraging will drive earnings per share (EPS,) and we are raising our fiscal year 2008 (ending May) EPS estimate by $0.05 to $0.41, up from a $0.04 estimate in fiscal year 2007. However, with Centennial Communications up 25% so far this year and trading above peers, we believe the prospects are more than reflected. We keep our target price at $7.50.

Shaw Group (SGR)

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

Analyst: Stewart Scharf

Shaw Group will delay reporting Feb. quarter results, pending review of estimated costs for a petrochemical project. It says that additional charges of $0.05 to $0.09 per share are possible, along with restatements of prior quarters. We still project high-single digit revenue growth for fiscal year 2007 (ending Aug.) on growth in energy and chemical projects, but expect margins to be hurt by a weak infrastructure segment. We are cutting our fiscal year 2007 EPS estimate by $0.25, to $1.15. We lower our 12-month target price by $10 to $25.

Wendy's International (WEN)

Reiterates 2 STARS (sell)

Analyst: Mark Basham

We are disappointed by first quarter same-store sales rises of 3.8% for company-owned restaurants and 3.7% for franchised units, compared to Wendy's plan for full 2007 comps of 3% to 4%, for two reasons. First, comps were easy, as sales fell about 5% in the first quarter of 2006. Second, year-earlier comparisons get much tougher in the second half of 2007, so we think first quarter comps had to be above 3% to 4% in order to be in that range for the full year. We think the first quarter's sales performance suggests that our 2% forecast for full 2007 comparable sales is more realistic, and we are keeping our $1.10 2007 earnings per share (EPS) estimate and $26 target price.

Sealy (ZZ)

Starts at 3 STARS (hold)

Analyst: Thomas Smith

We look for this vertically integrated manufacturer of bedding products to increase revenues more than 6% in fiscal year 2007 (ending Nov.) amid a period of tempered demand we see for home furnishings, given our outlook for slowing new home sales. We believe margins will be pressured through the summer by product transitions and new plant costs, with an opportunity for improvement thereafter. We estimate EPS of $1.10 for fiscal year 2007 and $1.30 for fiscal year 2008. Our 12-month target price of $19 reflects our discounted cash flow and relative value analyses.

Euronet Worldwide (EEFT)

Reiterates 3 STARS (hold)

Analyst: Dylan Cathers

Euronet Worldwide completes the acquisition of RIA Envia. The deal helps Euronet establish itself as the third-largest global money transfer company, and cost $490 million in cash and stock, with some additional consideration in the form of contingent value and stock appreciation rights. We believe the purchase will be rewarding in the future, but think that risks remain in the near term, including integration issues and the recent struggles of the money transfer market in general. Our 2007 EPS estimate remains $1.23, and we are keeping our 12-month target price of $30.

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