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: Compuware Corp. (Nasdaq: CPWR), Marriott (NYSE: MAR), Starwood (NYSE: HOT), Intercontinental Hotels Group (NYSE: IHG) and American Oriental Bioengineering, Inc. (NYSE: AOB).
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Here are highlights from Friday’s Analyst Blog:
Compuware Beats Non-GAAP Ests
Compuware Corp. (Nasdaq: CPWR) shares are trading higher today after the company posted its Q4 and fiscal year-end results yesterday. Q4 revenues of $253.4 million were sharply lower compared to our estimate of $276 million (consensus was at $268 million), while non-GAAP EPS came in higher at $0.20 compared to our $0.18 estimate (consensus was at $0.19). Operating expense reduction during the quarter was key to the EPS beat despite lower than expected revenues.
CPWR provides software products and professional services to many of the large users of information systems in the world. While quarter-over-quarter comparison was poor, overall year-over-year comparison fared slightly better, highlighting the impact of global economic weakness and the negative effect of currency exchange in the second half of the fiscal year.
The company maintained its margins well during this rough period, achieving higher operating margins in Q4 on a q/q basis by effectively reducing opex. Part of this was by moving its professional services business to a leaner, higher-margin practice and also moving away from its quality and testing business.
Hotels: Deterioration Continues
Declines in ADR [average daily room rate] have accelerated in the second quarter, down 9.4% thus far, versus a decline of 7.4% in the first quarter. This trend seems poised to continue, as Marriott (NYSE: MAR) announced today that it is offering 20% off weekend room rates at more than 2,500 hotels worldwide.
The deterioration in room rates is a troubling sign, in our opinion.
We believe that it is generally a mistake for hotel operators to cut room rates in an attempt to drive occupancy higher. Changes in room rates fall to the bottom line at a much higher percentage than do changes in occupancy. Additionally, when the economy does eventually stabilize, hotel operators may find it more difficult to raise rates back to historical levels, thus prolonging the problems faced by the industry.
The road ahead clearly remains extremely challenging for the large hotel companies, including Marriott, Starwood (NYSE: HOT) and Intercontinental Hotels Group (NYSE: IHG). With no clear sign on the horizon that operating fundamentals in the hotel industry will improve in the near future, we maintain our negative outlook on the group.
AOB Downgraded to Hold
American Oriental Bioengineering, Inc. (NYSE: AOB) has been doing well both financially and operationally since 2003. Total revenue crossed the $100 million mark in fiscal year 2006 with $110 million in revenue, a 101% increase over revenue in 2005. Revenue reached $160.5 million in fiscal 2007, up 45.7% from $110 million one year ago. AOB has enjoyed a compound annual growth rate (CAGR) of 66.2% from 2003 to 2008 in terms of revenue growth. Revenue growth in the past few years has been mainly driven by key product sales in the PBP sector and PBN sector.
However, we are concerned about the growth in 2009 and beyond. Top-line growth in 1Q09 dramatically declined to 19% (13% if excluding distribution revenue which did not exist in 1Q08). We think the economic downturn in China is the ultimate culprit. Therefore, we lowered our estimates for 2009. We expect total revenue in fiscal 2009 will be $307 million, up only 16% year over year. Net income and EPS in 2009 will decline compared to 2008.
Based on our forecast, we downgrade AOB shares from Buy to Hold with a price target of $5.5.
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