Markets & Finance

S&P Downgrades Beazer Homes to Sell


From Standard & Poor's Equity Research

Beazer Homes (BZH) : Cuts to 2 STARS (sell) from 3 STARS (hold)

Analyst: William Mack, CFA

We believe widespread evidence of slower new home demand will soon hurt Beazer Homes's results. We are cutting our fiscal year 2006 (ending September) earnings per share (EPS) forecast to $10.15 from $10.40, and our fiscal year 2007 estimate to $9.90 from $10.40. Although we think the company adjusted relatively early to the slower sales climate, we believe the measures being undertaken will fail to fully insulate it from the sharp drop in demand that we see as ongoing. Thus, we are reducing our 12-month target price to $45 from $57.

Post Properties (PPS) : Cuts to 1 STAR (strong sell) from 2 STARS (sell)

Analyst: Royal Shepard

Partially reflecting recent stock price strength, we would sell the shares. We expect the trust's operations to underperform those of its peers due to Post Properties's high concentration of business in slowly recovering markets, such as Atlanta and Dallas. We believe cash flow, after capex, will not cover the cash dividend in 2006. Although Post Properties has increased its development pipeline, we think expansion into "for-sale" condominiums adds extra risk as the housing market softens. Based on our unchanged $32 12-month target price, we see significant downside in the shares at the current price.

Pall (PLL) : Cuts to 2 STARS (sell) from 3 STARS (hold)

Analyst: Stewart Scharf

April quarter EPS of 37 cents before 13 cents charges vs. 37 cents, is 6 cents below our estimate. Sales rose 3.3% (7% in local currency), led by strength in microelectronics and biopharm. With our view that the full impact of the latest cost-cutting plan will likely be felt in late fiscal year 2008 (ending July), we see this as a transition period; costs remain high and much work lies ahead. Pall is at 20 times our fiscal year 2007 $1.50 EPS estimate (cut today from $1.55), above peers. Our target price drops by $5 to $25.

Steiner Leisure (STNR) : Cuts to 1 STAR (strong sell) from 2 STARS (sell)

Analyst: William Mack, CFA

We think the stock's recent price gains are unjustified, as anecdotal evidence from key cruise line customers implies slower growth. Indeed, we think maintaining past margins in this climate will become an ongoing challenge as Steiner Leisure tries to reduce its dependence on this important industry. Our 12-month target price remains $38.

Computer Storage & Peripherals Sub-Industry (EMC) : Reiterates Positive Stance

Analyst: Richard Stice, CFA

Research firm IDC releases an update, reporting that the external disk storage systems market grew in excess of 10% during the first quarter. Demand for high-end products, which have been lackluster in recent quarters, were the primary growth driver. EMC expanded its leading market share position, capturing 22% of the total. We believe that sub-industry dynamics remain favorable, given the expansion of data items and more stringent regulations. Our top picks include EMC, Emulex (ELX) , Imation (IMN), Qlogic (QLGC) and Seagate Technology (STX).

CVS (CVS) : Reiterates 5 STARS (strong buy)

Analyst: Joseph Agnese

CVS completes the acquisition of 700 drugstores from Albertson's (ABS), making it the largest pharmacy operator in the U.S. in terms of store count, with over 6,100 stores. Due to integration costs, our 2006 EPS estimate falls by 12 cents to $1.48. However, we are raising our 2007 forecast by 5 cents to $1.90, as scale benefits should lead to reduced purchasing, advertising and administrative costs. We see longer-term opportunities for growth of CVS private label products and improved leverage to expand the brand in new markets. Our target price is $38.


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