Zacks Equity Research highlights SABESP (NYSE: SBS) as the Bull of the Day and AutoNation, Inc. (NYSE: AN) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on SiRF Technology Holding, Inc. (Nasdaq: SIRF), Public Storage, Inc. (NYSE: PSA) and D.R. Horton, Inc. (NYSE: DHI).
Full analysis of all these stocks is available at http://at.zacks.com/?id=2676.
Here is a synopsis of all five stocks:
Bull of the Day: SABESP (NYSE: SBS)
We are keeping our Buy recommendation on Companhia de Saneamento Basico do Estado de São Paulo, or SABESP. The company posted reasonably positive results for the third quarter of 2008, even though its operating margins decreased.
The short-term outlook remains positive, due to the September 2008 tariff adjustment. Despite the recent depreciation in Brazilian real due to the global financial crisis, we believe that soon the Brazilian real will strengthen and that the company will benefit in the short term. Moreover, the regulatory framework for water and sewage in Brazil in 2006 helped the company in making all possible investments.
We consider the current discount in SABESP's valuation compared to the industry average to be absurd, and we also believe that the company's price/sales ratio is too low. Our target price for SBS is US$50.00, representing a P/E between 8x and 9x our 2008 earnings estimate, closer to the average of the Brazilian Bovespa benchmark. We reiterate our Buy recommendation on SBS.
Bear of the Day: AutoNation, Inc. (NYSE: AN)
We expect AutoNation to be hurt by a continuing weak new car market. The company is disproportionately exposed to Florida and California, states that will be hit the most by a slowing car market.
Moreover, the credit crisis in the U.S. led to a 22% decline in AutoNation's sales, followed by a 32% decline in net profits in the third quarter of 2008. AutoNation's higher debts and interest charges are also major causes of concern. Tight credit and a slumping U.S. demand are expected to continue to affect sales and thereby margins in the near term.
Should it happen, the bankruptcy of General Motors, one of the major customers, would largely affect the operations of AutoNation. As a result, we rate the shares a SELL with a target of $6.00.
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SiRF Technology Holding, Inc. (Nasdaq: SIRF)
SiRF Technology is a fabless OEM of GPS semiconductor chipsets, semiconductor-based modules and associated software.
SiRF reported a difficult September quarter as demand for Personal Navigation Devices (PNDs) slowed and competition has increased. Gross margin continues to fall from the prior year as the firm sells a higher mix of low-margin System-on-a-Chip (SOC) products.
Several end markets don't appear to be near-term catalysts that have the potential to significantly revise expectations upwards. Consequently, we are initiating a Hold recommendation on the shares of SiRF Technology Holding Inc.
Public Storage, Inc. (NYSE: PSA)
Public Storage is a fully integrated, self-administered and self-managed real estate investment trust (REIT) engaged in the acquisition, development, ownership and operation of storage facilities in 38 states and seven European nations. The company currently has interests in 2,017 storage facilities, with 127 million rentable square feet of space in the US.
The company missed our 3Q FFO [funds from operations] estimates of $1.30 per share primarily due to foreign currency losses. Operationally, PSA's properties continue to perform relatively well: 3Q same-store NOI and rental rates increased in most of the company's US markets. The company has plenty of cash to actively pursue acquisitions in a market where pricing for self-storage facilities is getting much more attractive.
D.R. Horton, Inc. (NYSE: DHI)
D.R. Horton reported fourth quarter EPS of -$2.53. This is due to lower gross margin on home sales and larger charges taken for inventory impairments and land option cost write-offs.
D.R. Horton generated $480 million in operating cash flow in Q4 thanks to land sales and fewer dollars invested in homes and land & lots. Also, DHI cut the quarterly dividend in half to $0.0375 from $0.075, which will help to preserve cash on the balance sheet.
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About the Bull and Bear of the Day
Every day, the analysts at Zacks Equity Research select two stocks that are likely to outperform (Bull) or underperform (Bear) the markets over the next 3-6 months.
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