August 6, 2008
Analyst Actions: AIG, Cree, MicroStrategy
UBS UPGRADES AIG TO BUY FROM NEUTRAL
UBS analyst Andrew Kligerman says American International Group's (AIG) valuation of 0.81 times book value [excluding accumulated other comprehensive income ] discounts its ultimate economic loss exposure in its AIG-Financial Products credit default swaps and insurance investments, and fails to recognize its 14%-plus operating return-on-equity [ROE] potential under difficult market conditions.
Kligerman thinks AIG is well-positioned to absorb further losses -- without a need for an equity raise -- given its second quarter 2008 capital raise of about $20 billion, operating EPS power, and debt capacity. He notes that with $55 billion in cash/short-term at first quarter 2008 [vs. $29 billion in the second quarter 2007], AIG seems well-equipped to meet liquidity needs.
He sees $1.80 2008 operating EPS and $5.43 for 2009. He raises $35 12-month price target to $41.
MORGAN KEEGAN UPGRADES CREE TO OUTPERFORM
Morgan Keegan analyst Harsh Kumar says he's upgrading Cree (CREE) to outperform from market perform from based primarily on the recent stock pullback and his belief that several of the issues surrounding Cree [including a potential slowdown in China, intensive competition, its COTCO acquisition] are mostly priced in at current [pre-opening] levels.
Kumar thinks Cree should be in a position to meet Street estimates of $0.09 EPS on $131.1 million revenue for the June-quarter. He also believes Cree's core business is poised for growth in the September-quarter, for which the Street is looking for $0.10 EPS on $137.0 million revenue.
He notes that the June quarter will be the first quarter that investors will be able to get some transparency and an apples-to-apples comparison since COTCO was acquired on Apr. 2, 2007.
ROTH CAPITAL DOWNGRADES MICROSTRATEGY TO HOLD FROM BUY
Roth Capital analyst Nathan Schneiderman says MicroStrategy's (MSTR) second quarter results were disappointing; although core business intelligence revenue only missed consensus by $1 million, $0.66 EPS was a huge miss vs. the $1.08 consensus, hurt by the revenue shortfall and higher-than-expected costs and taxes.
He also notes license fees of $21 million were down quarter-to-quarter and year-over-year and missed his estimate by $2.5 million. He says his thesis on MSTR had been that aggressive hiring in sales would translate into higher license fees, but this has yet to materialize. He adds that the outlook going forward appears challenging given a cost structure that seems too high relative to the revenue opportunity.
Schneiderman cuts $4.26 2008 EPS estimate to $3.05 and $5.68 for 2009 to $4.00.