July 28, 2008
Analyst Actions: Wachovia, Abercrombie & Fitch, Crocs, Western Digital
MORGAN KEEGAN CUTS WACHOVIA TO UNDERPERFORM FROM MARKET PERFORM
Morgan Keegan analyst Robert Patten says Wachovia (WB) shares are up 73% since July 15, compared to 32% for KBW Bank index and currently trade at 1.3 times TBV [before open].Patten believes investors have become overly optimistic too soon, following comments that WB does not need to raise common equity. He believes it is too early -- given the significant credit challenges ahead for WB management -- to make that call.
He recommends investors swap out of WB and into SunTrust Banks (STI) and First Horizon National (FHN); he says both of these banks, while facing challenges, appear to be better positioned in terms of capital and reserves to manage through the current crisis with better EPS visibility into 2009.
He sees $0.91 2008 loss and $1.75 2009 EPS for WB.
BANC OF AMERICA DOWNGRADES ABERCROMBIE & FITCH
Banc of American analyst Dana Cohen says with airlines expected to cut international traffic into most gateway cities, Cohen thinks this increases risk to Abercrombie & Fitch (ANF) division comps. Cohen says year-to-date, that division has been running relatively strong and comps are up 4%.
Cohen points out international tourism has been the key driving +40% comps in about 20% of its store base. Cohen is also concerned about the fact that initial fall set just put in stores shows little newness. While Cohen recognizes that the valuation pretty inexpensive, this not a sufficient reason to buy the stock, particularly if concerned about negative rate of change.
Cohen says today's announcement that CFO to resign isn't an issue on her downgrade to neutral from buy. Cohen cuts price target to $55.
BANC OF AMERICA DOWNGRADES CROCS TO NEUTRAL FROM OUTPERFORM, SLASHES TARGET TO $5
Analyst Mitch Kummetz tells salesforce he does not see a catalyst to reverse trends in Crocs (CROX) stock. He notes new guidance of $0.04-$0.08 second quarter EPS excluding charges on $218-$233 million revenue, vs. prior $0.45-$0.50 EPS on $247-$258 million forecast.
Kummetz says second quarter sales shortfall was largely attributable to weak U.S. reorders. He now looks for second quarter operating margin of 4.1%, vs. 30.5% a year ago.
He says he's surprised by the magnitude of its second quarter miss and 2008 revision. Although he understood core business had softened, he was encouraged by the breadth of new product at retail and that overall retail pricing was holding up fairly well; however, he was clearly misled.
He cuts his $1.70 2008 EPS estimate to $0.16, excluding charge. He slashes $21 price target to $5.
NEEDHAM DOWNGRADES WESTERN DIGITAL TO BUY FROM STRONG BUY
Needham analyst Richard Kugele says Western Digital (WDC) once again posted impressive results: $2 billion fourth quarter revenue, $0.94 non-GAAP EPS vs. his estimates of $1.85 billion and $0.78. But he adds that spectacular is not good enough.
Kugele says after "channel antics of the industry" in June [when STX priced desktop 500GB drives, for example, at well below market prices], these actions have now infected the September OEM pricing environment. He says he had incorrectly thought WDC's product mix [significant retail, leading edge mobile, fewer components, Komag accretion] would be able to compensate for this aggression. This was not to be, as industry headwinds are clearly impacting results.
He cuts $4.39 fiscal year fiscal year 2009 [June] EPS to $3.65.