Stock Picks: Ace, Kennametal, VCA Antech, Zumiez

Ace Ltd.: Soleil Securities equity analyst Harry Fong on June 3 maintained a hold rating on shares of Ace (ACE), the Zurich-based insurer with operations in more than 50 countries. He has a $55 price target on the shares.

In a brief note, Fong said Ace hosted its first-ever investor day on June 2, providing a comprehensive review of each of its businesses: traditional property and casualty; accident and health; and life insurance. Fong said Ace sees the life insurance, accident and health, and personal lines business becoming a more integral part of its business in the future.

Fong said Ace "provided color" on its accident and health business, "widely considered to be the crown jewel of the company." In 2009, ACE generated $3.75 billion in gross accident and health premiums, Fong said, and consistently generates combined ratios, a measure of industry profitability that blends loss and expense ratios, below 90 percent.

"When the [insurance premium pricing] cycle turns, we think ACE Limited will be a stock to own," Fond wrote. "We say this because the company continues to believe that holding on to excess capital remains the appropriate strategy, even in this soft underwriting environment."

Kennametal: Jesup & Lamont equity analyst Jim Ruskin reiterated a buy rating on shares of Kennametal (KMT) on June 3. He lowered a price target on the shares to $50 from $55.

In a note, Ruskin said the supplier of tools to the mining and energy industries has "restructured its manufacturing footprint and costs while maintaining the capacity to handle up to $3 billion in revenues." He said he expects the company's incremental profit margin "to remain at high levels for the next $1 billion of revenue growth."

Ruskin lowered an earnings per share (EPS) estimate for fiscal 2011 (ending June) to $2.41 from $2.79. His fiscal 2010 estimate remains at $1.07.

"Even though we have lowered our estimates to incorporate our less optimistic view of International growth, we remain well above [the Wall Street] consensus," Ruskin noted.

VCA Antech: On June 3, Kaufman Bros. equity analyst Dawn Brock maintained a hold rating and $30 price target on shares of VCA Antech (WOOF), the largest U.S. operator of veterinary hospitals and clinics.

On June 2, VCA Antech agreed to acquire PET DRx (VETS), which operates 23 animal hospitals in California, for $41.25 million in cash.

In a note, Brock said the addition of PET DRx "deepens WOOF's California presence with an additional 23 hospitals in its key markets and provides additional strength to its specialty footprint with another 4-5 larger multispecialty hospitals." Brock said she believes PET DRx will begin to contribute to VCA Antech's revenue in the third quarter of 2010, "with a full impact&quot", on June 3 in the fourth quarter.

"In our view, WOOF has a proven track record of successful integrations that have exceeded initial expectations as it leverages its size and established infrastructure to drive margin improvement," Brock wrote.

The analyst said she views PET DRx as a "small but well-priced, strategic acquisition" for VCA Antech.

Zumiez: Caris & Co. equity analyst Dorothy Lakner reiterated an above-average rating and $25 price target on shares of specialty sports apparel retailer Zumiez (ZUMZ) on June 3.

On June 2, Zumiez reported a 7.1 percent increase in comparable store sales for the four-week period ended May 29, vs. a decrease of 20.7 percent in the year-earlier period.

In a note, Lakner said the company's same-store sales increase in May was well above her estimate of 4 percent. She noted that the company "now has six months of positive [same-store sales] under its belt, more evidence that its more value-oriented approach is working, and it sounds like more are on the way." The analyst said Zumiez will have another easy comparison in in June, as same-store sales declined 19.3 percent in the prior-year period.

The "news flow should remain positive" for Zumiez as it heads into July and the beginning of the back-to-school season, Lakner said.

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