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Inside Wall Street


A Paved Road for Marietta

Infrastructure stocks have been on a wild ride since autumn. Because of early investor excitement over President Barack Obama's infrastructure plan, they initially scored 30%-to-100% gains. But as the recession got worse, building-material stocks slid once more. Now the outlook is getting brighter, as Obama's stimulus package will begin boosting some company earnings this year. So says Stephen Zelnak, chairman and CEO of Martin Marietta Materials (MLM), the second-largest U.S. producer of construction materials such as stone and gravel. Zelnak assumes $30 billion will be spent on highways and up to $18 billion on transit and airports. As a result, he figures Marietta's earnings will jump by 50 cents to 75 cents a share in 2009 and says the lift in 2010-11 will be even more.

Marietta remains in "decent shape financially, and rightfully it is thinking about financially attractive acquisitions," says Clyde Lewis of Citigroup (C), which has done banking for Marietta. For 2009, Lewis upped his profit forecast 14%, to $4.14 a share, and to $5.10 for 2010. Kathryn Thompson of Avondale Partners, who rates Marietta "outperform," says one potential catalyst for the stock, which is down to 74.77 a share on Feb. 25 from a 52-week high of 125 on May 19, is a recovery in U.S. housing. Her 12-month price target: 96.

Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

Breaking Through Static at Harris

Electronics stocks are at the bottom of the tech heap, mainly because of weak demand. Yet a few are expected to outperform the broader market this year, says Value Line's (VALU) Garrett Sussman. One such is Harris (HRS), a global maker of communications equipment, including secure wireless voice and data systems for government agencies and commercial enterprises. Harris' growth is driven by new contracts for tactical mobile radios and info tech services.

Harris shares traded at 38.74 a share on Feb. 25, down from 66 last May. But it could "garner a higher price than its peers because of its higher growth rate and margin structure," says Chris Donaghey of SunTrust Robinson Humphrey (it has done business with Harris).

PriceTarget Research, also bullish, has a target of 78, partly based on 2009's forecasted 18.6% return on equity and 19% earnings growth rate.

Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

Stericycle's Stellar Numbers

Even if a company's business is recession-resistant, that's no guarantee its stock will escape this bear market's sweeping decline. That's the misfortune of Stericycle (SRCL), the largest North American medical waste-management company. It runs environmental operations across the U.S. as well as in Argentina, Britain, Canada, Ireland, and Mexico. Despite the recession, Stericycle is on a roll in terms of revenues, earnings, cash flow, operating margins, and book value—all are up for at least the past five years. Yet its stock doesn't reflect any of the good news: It closed at 48.04 a share on Feb. 25, down from 66 last September.

Stewart Scharf of Standard & Poor's (MHP), who rates the stock a buy, says favorable global trends and Stericycle's solid cash flow bode well for the company. Scharf's 12-month stock price target is 61.

Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.


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