Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: LeapFrog (NYSE:LF), Monogram Biosciences (Nasdaq:MGRM), Pfizer (NYSE:PFE), PeopleSupport (Nasdaq:PSPT) and Vonage (NYSE:VG).
See the latest posts to the Analyst Blog by visiting: http://at.zacks.com/?id=2673.
Here are highlights from Monday’s Analyst Blog:
LeapFrog Jumps from Sell to Hold
LeapFrog (NYSE:LF) management's actions to improve long-term operating results through increased R&D and incremental marketing spending in 2007 are leading to another year of negative earnings. In the most recent quarter, revenues declined in all three business segments due to softening demand and restructuring activities.
However, the operating margin is beginning to improve as the positive effects of the restructuring become evident. While LeapFrog is an industry-leader in terms of innovation and educational content, significant operational issues are plaguing the company. The significant decline in the LeapPad family of products and increased promotional activities are causing the company to post losses and the company is not expected to post positive earnings until 2009.
Given the lack of earnings progress, price-to-book valuation is appropriate. The company could make an interesting acquisition candidate between 1.0x and 1.5 times book value, which should tend to support the share price. With the reorganization of the SchoolHouse segment and the improvement of the gross margin, the stock could trade up to 2.0 times book value or $9.00 per share.
Monogram Gets Labeled as a Hold
Monogram Biosciences (Nasdaq:MGRM) is a life sciences company, engaged in the development and commercialization of molecular diagnostic products focusing on infectious diseases, cancer and other diseases. We are optimistic about its HIV test products and the potential of its VeraTag Assay for cancer test.
The company stands to benefit meaningfully from the launch of Pfizer’s (NYSE:PFE) Maraviroc in both the U.S. and European markets. However, we would like to see how Monogram manages its top and bottom line growth in the coming years before we recommend the shares.
We maintain our HOLD rating on Monogram Biosciences shares with a target price of $1.90. We believe the company’s shares are fairly valued at the current level. We arrive at our target price by using a P/S multiple of 5.8x, at a discount to the diagnostic industry average P/S multiple of 7x, multiplied by our estimated 2007 product sales of $42.9 million, which corresponds to a market capitalization of $250.6 million.
Bounceback Expected for PSPT
PeopleSupport (Nasdaq:PSPT) is well positioned to benefit from the fast-growing offshore BPO market. The company’s long-term prospects are still promising despite the loss of the Vonage (NYSE:VG) contract and the stock appears to be attractively valued at current levels. Hence, the stock is rated a Buy. Though PeopleSupport has only a two-year trading history, the stock has traded in a wide P/E range of 11 to 33.
PSPT is currently trading at a P/E of 17.5, due to the negative earnings surprise reported in the fourth quarter of 2006, which led to a dramatic decline in the stock price, and eventually to the loss of the Vonage contract. However, the company’s high sales growth profile and exposure to the attractive high-growth BPO market should be very attractive to investors.
In the short-term, the operating margin will remain constrained due to increasing rents in Philippines and higher costs associated with the company’s production capacity expansion plans. The company is, however, poised to grow over the long term from increased production capacity and economies of scale. The target price is $13.75, which is 22 times our 2007 (depressed) earnings estimate.
See the latest posts to the Analyst Blog by visiting http://at.zacks.com/?id=2645.
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The performance of the Zacks Rank portfolios shown above for annual and year-to-date periods are the linked monthly total returns (price changes + dividends) of equal weighted hypothetical portfolios, consisting of those stocks with the indicated Zacks Rank, assuming monthly rebalancing and zero transaction costs. These are not the returns of actual portfolios. The hypothetical portfolios were created at the beginning of each month from Jan 1988 forward based on the values of the Zacks Rank available to Zacks' clients before the beginning of each month. The portfolios created monthly from 1988 through September 2006 exclude ADRS and are comprised of stocks that have the indicated Zacks Rank and were covered by at least two analysts at the time of the stocks inclusion in the portfolio. Starting in October 2006 and going forward, the portfolios are comprised of all stocks with the indicated Zacks Rank and do not exclude ADRs, which is more reflective of the list of stocks that customers will find on the Zacks web sites. 2007 returns are for the period of Jan 1 – Jun 30, 2007. These performance numbers have been audited from 1995 through 2003 by Autschuler Melovan, a division of American Express Financial.
Terry Ruffolo, 312-265-9213
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