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Here are highlights from Thursday's Analyst Blog:
Animal Health at Good Value
With a significant number of products expected to lose patent protection over the next several years, we believe Animal Health International, Inc. (Nasdaq: AHII | Quote | Chart | News | PowerRating) is well positioned to enhance margin expansion through the incremental addition of private label products to the product mix.
Animal Health's existing infrastructure and longstanding supplier relationships on the production side represent significant comparative advantages, which underpin the company's ability to grow both organically and via acquisition in both the production animal and relatively faster growing companion animal markets. In addition to its branded product offering, the company also distributes its own higher margin private label product lines, which are marketed under the RXV Products, AGRIpharm, First Companion, Mineral Max, and Ivermax brands.
Shanghai Petro a Hold, Near-Term
Shanghai Petrochemicals (NYSE: SHI | Quote | Chart | News | PowerRating) exposure to the fast-expanding Chinese economy and strong petrochemical product demand make us confident of strong volume growth. However, revocation of government price controls in the future, higher crude oil prices and increased competition are some of the major concerns for the company.
The company expects its first half 2008 net profit to decline 50% from the year-ago period. Thus, we rate the stock a Hold with a six-month target price of $33.00. Currently, the ADS is trading at 7.0x our 2008 EPADS estimate of $4.31.
BJ Beats, Guidance Disappoints
BJ's Wholesale Club (NYSE: BJ | Quote | Chart | News | PowerRating) reported strong results for the second quarter with total sales growth of 17.9% and comp-store sales growth of 15.5%. Its earnings per share were up 31.8% year-over-year and were $0.04 above consensus expectations. The company's efforts to improve its merchandise and increase store traffic continue to drive its sales. The difficult macro economic conditions are also pushing customers into discount stores and wholesale clubs, which offer a better value compared to supermarkets.
However, management disappointed the market by increasing its full-year guidance from $2.04-$2.14 to $2.10-$2.20. Guidance was disappointing because the consensus estimate was $2.14 prior to the second quarter beat, so the company essentially guided lower for the second half of the year.
CEMIG a Brazil Buy Up to $27
We are keeping our Buy recommendation on Companhia Energetica de Minas Gerais, or CEMIG (NYSE: CIG). The company posted positive results for the second quarter of 2008, and the short-to-medium term outlook remains promising as demand for electricity in Brazil keeps growing.
We believe that the company will also benefit from the upgrade of the Brazilian Electric Sector by Moody's. Moreover, we have a positive outlook for the Brazilian economic environment in the short term, despite a less benign monetary policy.
Mid-America Apts Undervalued
Mid-America Apartments (NYSE: MAA | Quote | Chart | News | PowerRating) reported 2Q FFO (funds from operations) of $0.95 per share, 13% higher than the year-earlier period and $0.02 per share higher than our estimates. Steady operating results and lower interest expense were the main reasons for the increase.
The company expects multi-family fundamentals to weaken in the coming quarters due to a stagnant US economy and lack of meaningful job growth. We still rate the company a Buy due to valuation and yield. MAA is trading at a significant discount to sector averages, and the company has an above average dividend that is being coverage at the AFFO level.
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