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Analyst Actions: Cisco Systems, Novatel Wireless, Psychiatric Solutions

Posted on: Friday, 22 February 2008, 12:01 CST

CITIGROUP UPGRADES CISCO SYSTEMS TO BUY FROM NEUTRAL

Citigroup analyst Paul Mansky says he considers Cisco Systems (CSCO) stock attractive to long-term investors, based on more reasonable consensus expectations, his view that a consumer-led downturn will be less sharply felt by tech companies compared to 2001-02, and the shares' attractive valuation.

Mansky says his bias is shifting to companies enjoying duopolistic competitive dynamics and global reach, and that can scale business without having to build new channels. He believes Cisco, Brocade Communications (BRCD), Emulex (ELX), QLogic (QLGC), and EMC (EMC) fit that profile, while, to varying degrees, F5 Networks (FFIV), Juniper Networks (JNPR), Foundry Networks (FDRY), Riverbed (RVBD), and Network Appliance (NTAP) may not.

He decreases his risk rating on CSCO from high to medium. He raises his 25 price target for the stock to 27.

JMP SECURITIES DOWNGRADES NOVATEL WIRELESS

JMP Securities analyst Samuel Wilson says he is downgrading Novatel Wireless (NVTL) to market perform from market outperform on mixed fourth quarter results and disappointing first quarter guidance.

Wilson says $0.40 fourth quarter operating EPS was $0.05 above his estimate and $0.06 above the Street's, but it included a one-time $0.03 tax and foreign exchange benefit. Also, $118 million fourth quarter revenues missed his $122.5 million estimate and the $120.8 million consensus, due to a delay of shipments and component shortages. He notes the company sees $110 million first quarter revenues, vs. the current $121 million consensus forecast.

He cuts his GAAP EPS forecast of $1.27 for 2008 to $1.06, and $1.45 operating EPS to $1.25. Using a 12.5 forward p-e on 2008 earnings, he gets a fair value of 15.50, meaning he feels the risk-reward is not favorable enough to justify buying NVTL at last night's closing level.

CREDIT SUISSE CUTS TARGET ON PSYCHIATRIC SOLUTIONS

Credit Suisse analyst Kenneth Weakley says Psychiatric Solutions' (PSYS) fourth quarter operating EPS of $0.42 was $0.01 ahead of consensus, but revenues were softer than expected. He says preventing a significant miss in fourth quarter EPS was a major unexpected drop in "other operating costs."

He notes while PSYS increased 2008 EPS guidance by $0.10, the basis for the change was lower interest costs. He says while lower interest costs are positive, a growth story increasingly unable to rely on operating trends is likely to be viewed with a rising degree of skepticism by the market.

Weakley cuts his 30 price target to 26 due to diminished outlook on volume and increasingly apparent difficulties with same-store facilities. He maintains an underperform opinion on the stock.

Source: Business Week

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