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: AK Steel Holding Corp. (NYSE: AKS), Actel Corp. (Nasdaq: ACTL), Arch Coal Inc. (NYSE: ACI), Builders FirstSource Inc. (Nasdaq: BLDR) and Stratasys, Inc. (Nasdaq: SSYS).
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Here are highlights from Wednesday’s Analyst Blog:
AK Steel Still a Buy to $60
We expect AK Steel Holding Corp.’s (NYSE: AKS) cost-reduction efforts and renegotiated higher-priced contracts to prevent excessive margin deterioration in light of higher commodity costs. The company has greater product diversification compared to its peers and is focusing on markets and products which have the greatest long-term potential to succeed.
We believe the company will gain from new projects, higher-selling prices, and increased shipment. Recently, the company had talks with several parties to divest itself. We reiterate the Buy rating and retain our six-month target price of $60.00.
Actel's Flash Looking to Spark
June quarter revenue for Actel Corporation (Nasdaq: ACTL) fell short of consensus expectations, as the company was short of flash product. However, the EPS was in-line. Although flash product growth was lower than expected, the product line is expected to remain strong for the next few years. Actel continues to enjoy a high margin in select markets, although the quicker ramp of new products is likely to exert some negative pressure.
The exposure to the consumer market is also increasing, so working capital requirements are likely to increase. The stock looks attractive at these price levels, but we are reiterating our Hold rating in view of the broader market uncertainties.
Arch Coal a Buy, Target Lowered
We are maintaining our Buy recommendation on Arch Coal Inc. (NYSE: ACI). Growing Asian economies and supply constraints are driving coal market fundamentals which appear to have continued strength through 2010. Arch's significant unpriced positions in '09/'10 give it leverage to both domestic and export markets allowing the company to achieve substantial margin expansion and earnings growth at an impressive pace.
The pullback in the coal sector over the past 30 days further corroborates our recommendation. The drop in crude oil prices does not correlate with prices contracted in the deliverable coal markets and therefore we believe that ACI's pullback was unjustified. Due to our updated commodity price and cost assumptions, we have lowered our six month target price from $90.00 to $81.00 per share.
Builders FirstSource Too Soon
Builders FirstSource’s (Nasdaq: BLDR) second quarter results were essentially in line with our estimates. Sales were $5 million above our forecast, while EPS missed by $0.01. The management declined to offer specific guidance, but does expect the difficult market conditions to negatively affect the company’s operating results through 2009.
Meanwhile, BLDR continues to cut costs and gain market share. When industry conditions finally improve, the company will be positioned to ramp up its operations and deliver powerful operating leverage. That said, we believe the residential housing market is far from bottoming, and it is too early to recommend buying BLDR shares. We rate the stock a Hold rating with a $5 target price.
Stratasys Trades at Fair Value
Stratasys, Inc. (Nasdaq: SSYS) reported second quarter EPS of $0.19, below our expectations but up about 12% year-over-year due to higher sales increase and higher operating margin. The revenue growth was led by a double-digit increase in the revenue of proprietary high-end systems (33%), proprietary consumables (17%) and maintenance (17%).
We believe the rapid prototyping market will grow in future as engineers and designers seek technology that will increase product development efficiency. SSYS’s product offering reduces both product development time and upfront costs. However, in our view, the stock has factored in the bulk of the earnings recovery expected in 2008 trading at 20.1x our 2008 EPS estimate. The stock remains fairly valued at the current price. Our target price is $16.75.
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