Analyst Picks and Pans

Analyst Picks and Pans: Penske, Radvision, Force Protection


Penske Automotive Group (PAG)

JPMorgan maintains overweight

JPMorgan analyst Himanshu Patel said on Oct. 1 that he expects a negative stock reaction from Penske's ending talks with General Motors to buy GM's Saturn division. He noted that the talks ended due to complications with the (undisclosed) automaker from which Penske had planned to buy cars after initially relying upon existing GM products. Patel said the market had bid up Penske shares 14% over the past three days amid media reports a deal was close at hand.

Patel expects the stock to retrace these gains, yet finds the current valuation is supported on his estimate of 2009 normalized EPS ($1.40), which never assumed upside from the deal.

Radvision Ltd. (RVSN)

Cantor Fitzgerald downgrades to sell from buy; cuts price target

Cantor analyst Edward Jackson said on Oct. 1 he downgraded Radvision due to the announced acquisition of Tandberg by Cisco Systems (CSCO). Jackson said Cisco is Radvision's largest customer, accounting for about 34% of total revenue in 2007; Tandberg is directly competitive with Radvision and thus he believes Radvision's Cisco-based revenue stream is at risk in the intermediate to longer term.

Jackson cut his $11 price target to $6.50, based on tangible book value of $6.52, which includes $6.05 in net cash. The analyst sees several risks associated with investment in Radvision, including a high level of customer concentration, competition, and geopolitical risk.

Force Protection (FRPT)

Collins Stewart upgrades to buy from hold

Cost-cutting that includes layoffs of 120 workers by Force Protection is bigger and faster than Collins Stewart analystames McIlree expected as he upgraded the shares of the manufacturer of mine-resistant armored vehicles on Oct. 1. McIlree also established a $7 price target.

Force Protection said on Sept. 30 it will cut $40 million in expenses, to be substantially completed in the first half of next year. The company said it will reduce its work force by 10% and expects a severance-related charge of about $2 million in the third quarter.

"This is a move we have long called for, but the magnitude and timing are bigger and faster than we modeled," McIlree said in a client note. "We have been commenting about the necessity of cost cuts for some time due to lower vehicle production and overhead absorption."

In late June, Force Dynamics, a joint venture between Force Protection and General Dynamics Corp., was among three companies to lose to Oshkosh Corp. for a $1.06 billion deal to build 2,244 blast resistant, off-road vehicles for forces in Afghanistan.

McIlree said the contract loss "completely removed the realistic chance of higher volumes in the foreseeable future."

As a result, Force Protection's reductions bring costs into line with a "sustainable revenue level," he said.

However, the cost-cutting probably signals tougher results for the third and fourth quarters than he expected, McIlree said.

CEO Michael Moody said Force Protection's vehicle deliveries have decreased in the last several quarters while non-vehicle deliveries of spares, modernization, field services and training have risen.

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