Analyst Picks and Pans

Analyst Picks and Pans: Costco, Accuray, Domtar


Costco Wholesale (COST)

William Blair & Co. upgrades to market perform from underperform

William Blair & Co. analyst Mark Miller upgraded Costco Wholesale on Aug. 25, citing the likelihood that business trends will stabilize. Miller predicted an easing of the pressure the Issaquah, Wash.-based company has felt from factors such as the stronger dollar and deflation.

Miller anticipates the deflationary impact on some of Costco's products could lessen over the next six months if commodity prices are stable.

The analyst reaffirmed his fourth-quarter profit estimate of 76 cents per share, as well as his 2009 and 2010 earnings forecasts of $2.48 and $2.73 per share, respectively.

Accuray (ARAY)

Jefferies & Co. rates hold

After Accuray Inc. reported disappointing fiscal fourth-quarter results and gave a weak outlook for the coming year, Jefferies & Co. analyst Peter Bye said on Aug. 25 that he is concerned about the medical radiation equipment maker's backlog and slowing growth in new orders.

Bye took a positive view of Accuray's CyberKnife radiation therapy system, but noted that the company's backlog of orders waiting to be filled shrank during the fourth quarter. As of June 27, the company had booked a total of $556 million in CyberKnife system agreements and service agreements. That was a drop of $35 million from the end of the third quarter.

He said the weak global economy may continue to hurt the company over the next year.

"Although we view the Cyberknife as a compelling technology, macroeconomic pressures and immature clinical efficacy data for some indications could limit the rate of adoption through fiscal 2010," he said. Bye has a price target of $6.50 per share.

The CyberKnife system beams large doses of radiation into tumors, killing them without surgery and making some treatments into outpatient procedures.

Domtar (UFS)

RBC Capital Markets raises target price

Domtar is benefiting from slowly improving paper markets and less debt, an analyst said Tuesday as he boosted his price target on the pulp and paper maker.

RBC Capital Markets Paul C. Quinn raised his price target to $50 from $40 on Aug. 25, implying the shares could rise 63% from the Aug. 24 closing price over the next year.

"Domtar has been one of our top investment ideas since the spring and we continue to believe that this stock will move much higher over the next six to 12 months," he said.

Shipments of uncoated freesheet rose 4% from June to July, according to the American Forest and Paper Association, Quinn said. At the end of July, shipments year-to-date were down nearly 15%, "but they are clearly improving as the latest stats are more favorable," he said.

Furthermore, producers are raising prices and pulp inventories are down, he said.

Domtar, based in Montreal, also is cutting its debt, Quinn noted.

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