Analyst Actions: Homebuilders, Mothers Work, Hologic, Kellwood

A selection of Monday's upgrades and downgrades from Wall Street researchers

From Standard & Poor's MarketScope

Homebuilders got a lift on Oct. 1 after Citigroup reportedly upgrades Pulte Homes (PHM), D.R. Horton (DHI), Centex (CTX), Lennar (LEN), and Ryland (RYL) to buy from hold.

Analyst Stephen King said he is upgrading his stance on homebuilding stocks. While he doesn't expect any of the builders to move much lower over the near term, he expects larger-cap builders and those with the strongest balance sheets to benefit the most from a near term bounce - much as they did coming out of 1990 trough.

King says he doesn't pretend that there is any near term relief in industry, but notes it bears repeating that homebuilding stocks have an established history of rallying well before industry fears have finished transitioning into fact. King says he is not suggesting trends getting better, but when things look this based is when stocks start to look good.

Mothers Work Drops after Sears Pact Fizzles

Mothers Work (MWRK) falls after the company says it was unable to reach terms on a renewal of its leased department relationship with Sears (SHLD).

Broadpoint cut its estimates for Mothers Work on the news. Analyst Paula Kalandiak said Mothers Work is ending its relationship operating Two Hearts Maternity departments in Sears stores on June 28, 2008 because Mothers Work and Sears couldn't agree on new terms. She expects Mothers Work to continue to operate Sears departments normally throughout the balance of the pact. And since Mothers Work's fiscal year ends in September, it should receive revenue as usual for about 75% of fiscal year 2008.

As such, while Kalandiak views the end of the relationship as a loss, she noted that Mothers Work still reaches similar demographic through other concepts and arrangements with other retailers. She cut $0.07 fourth quarter EPS estimate to breakeven, $2.20 FY 08 to $2.13; and $34 price target to $30. However, she kept a buy opinion on the stock.

CIBC Keeps Sector Outperform on Hologic

Hologic (HOLX) moved up after CIBC World reiterates its sector outperform recommendation. Analyst Amit Hazan said September data published on the FDA's website for National Mammography Statistics today was well above his expectations.

Hazan noted that 424 FFDM (full field digital mammography) units were installed in September; thus, 749 FFDM units were added for calendar year third quarter (vs. 431 in the second quarter and 405 in the first quarter). Hazan noted the sequential increase in third quarter penetration was 5.3% (by far the biggest quarter-to-quarter gain yet), while year-over-year, FFDM unit growth topped 100%.

Hazan said that while the data is not perfectly correlated to actual HOLX results, the indication is that there will be upside to his HOLX September-quarter estimate for 333 units installed worldwide. As such, remains a buyer of HOLX shares. Has $77 target.

Kellwood Gets Upgraded

Kellwood (KWD) rises after Lazard raised its opinion to buy from hold. Analyst Todd Slater believes four key initiatives in fiscal year 2008 (January) position Kellwood to enhance profit and ROIC growth in fiscal years 2009 and 2010.

Slater said these include: the transition of its men's Phat Farmbusiness to a margin-rich, capital-light licensing model; the exit of a pants manufacturing joint venture; the rationalization of its women's operating divisions from seven to three; and the acquisition of high-margin growth brands such as Vince and Hanna Anderson.

In the wake of Sun Capital's $21 unsolicited bid, and in light of numerous initiatives that position Kellwood to exceed historical peak operating margins, he raises $1.55 fiscal year 2009 EPS estimate to $1.70. He sets $24 price objective.

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