Zacks Analyst Blog Highlights: Apple Inc., Texas Capital, Hess Corp., DRDGOLD and Watsco

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Here are highlights from Tuesday's Analyst Blog:

Hold Apple on Premium Valuation

The strength of Apple Inc.'s (Nasdaq: AAPL | Quote | Chart | News | PowerRating) iPod business has carried over into its computer business, and we expect Macintosh (Mac) to continue taking share from traditional PC's as consumers become more familiar with Apple products and enjoy the enhanced media capabilities.

With a strong new product pipeline for 2008, including iPhone 3G, MacBook Air, Mac Pro, iTunes Movie Rentals, and major software upgrade and developer platform for iPhone 2, we believe the stock deserves a premium valuation to its peer group. The new iPhone3G should drive increased share of the smartphone market.

Little Upside for Texas Capital

Texas Capital Bancshares, Inc.'s (Nasdaq: TCBI | Quote | Chart | News | PowerRating) first-quarter operating results were $0.30 per share versus $0.29 per share recorded in the prior-year period. Results came in ahead of our expectation, driven by a substantially lower-than-expected provision for loan losses recorded for the quarter.

Growth remains paramount, as first-quarter average net loans expanded 25.9% year-over-year. Credit quality issues appear to have been contained presently. In our opinion, industry overhangs out-weigh TCBI's results for the quarter; as such, we continue to rate the shares of this company as a Hold.

Hess Corp. Shares Trade Fairly

Hess Corporation's (NYSE: HES | Quote | Chart | News | PowerRating) first-quarter earnings more than doubled, driven by production gains in tandem with record commodity prices. We continue to see upstream momentum in 2008 on the back of the company's leverage to high crude oil prices and large inventory of projects in Brazil, Australia, Libya, and Ghana. However, we believe these positives are already reflected in current valuation leaving little for upside from current levels.

The management is focused on restructuring the upstream asset portfolio by divesting mature and high-cost properties and increasing its exposure to longer reserve life and faster growing regions, such as West Africa, Asia, and the deepwater Gulf of Mexico (GoM).

Risks Keep DRDGOLD in Check

DRDGOLD Limited (Nasdaq: DROOY | Quote | Chart | News | PowerRating) is an unhedged gold-producing company with operations in South Africa and Australasia. The company has separated its South African and Australasian operations, thus becoming more focused. With minimal debt on its balance sheet, DROOY is well-positioned to undertake expansion activities.

Helped by rising gold prices, the company reported double digit growth in earnings in the third quarter of 2008 and generated healthy cash from operations. However, there are some challenges facing the company with respect to its aging South African assets, environmental laws, risks with currency exposure to the rand, and power shortages.

Thus, we rate the stock a Hold with a six-month target price of $7.00. This is 9.6x our 2008 EPS multiple. Currently, DROOY shares are trading at 8.7x 2008 our EPS estimate of $0.73, which is well below the industry multiple.

New Housing Holds Back Watsco

Watsco Inc. (NYSE: WSO | Quote | Chart | News | PowerRating) has the liquidity position and the de-levered balance sheet to continue with its aggressive acquisition strategy. With high energy prices likely to persist over the near future, we believe consumers will increase the purchase of higher-efficiency air conditioning systems.

We also feel the strength of the replacement market can offset some of the rapid deterioration in the new home market in 2008. We recommend investors Hold WSO shares in their portfolio. Our target price is $41.50, or 17.4x our 2008 EPS estimate of $2.38.

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