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: Smith International, Inc. (NYSE: SII), Owens-Illinois, Inc. (NYSE: OI), CME Group Inc. (Nasdaq: CME), Plains Exploration & Production Co. (NYSE: PXP) and Chesapeake Energy Corp. (NYSE: CHK).
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Here are highlights from Thursday’s Analyst Blog:
Smith Int'l Back Up to Buy
We are upgrading Smith International, Inc. (NYSE: SII) shares to Buy from Hold following the stock’s recent weakness, which has made valuation very compelling, in our view. The recent completion of the W-H Energy acquisition provides Smith with entry into new product lines with favorable growth prospects, particularly internationally.
Looking ahead, we expect the company to generate strong revenue growth and margin expansion, aided by demand acceleration, price increases and cost discipline. We have raised our EPS estimates (2008: $3.87 vs. $3.78; 2009: $4.90 vs. $4.69) and kept our price objective unchanged. Our price objective remains unchanged.
Owens-Illinois Market Neutral
Owens-Illinois, Inc. (NYSE: OI) reported second quarter EPS of $1.35, above our estimate of $1.22, on account of favorable currency translation, a higher-than-expected price recovery of manufacturing inflation, and lower net interest expenses.
The company saw double-digit glass container revenue growth across all geographic markets except North America. It derived the bulk of its revenue gains from currency translation and price recovery rather than volume. Unfortunately, if the U.S. dollar begins to stabilize or rally against the major world currencies, translation gains could dissipate. We expect OI will continue to focus on profitability over market share. Our target price of $41.00 is based on about 9.0x our FY08 EPS estimate of $4.57.
CME Group Starts Looking Pricey
CME Group (Nasdaq: CME), formed in 2007 by the merger of the Chicago Mercantile Exchange (CME) and the Chicago Board of Trade (CBOT), is the largest futures exchange in the world in terms of trading volume as well as notional value traded. Some weeks ago, CME reported 2nd-quarter earnings eight cents ahead of the consensus estimate.
Though relative valuation now looks expensive and current concerns for the sector continue to weigh on the shares, we remain optimistic about the continued growth prospects, especially with the recent acquisitions and the global expansion initiatives, resulting in increased market dominance. We also expect CME to continue to benefit from ongoing market volatility.
Plains Exploration Looks Strong
We are maintaining our Buy recommendation on Plains Exploration & Production Co. (NYSE: PXP) and increasing our target price from $84 to $91 per share. The company is poised for solid growth over the next several years with Piceance, Panhandle and Gulf Basin assets helping to drive production in a meaningful way.
However, the recent 20% acquisition of Chesapeake Energy Corp.’s (NYSE: CHK) Haynesville Shale play will likely be the cornerstone of the company’s long-term growth story, as there are more than 20 Tcfe of reserves in place on its gross acreage. Additionally, the company has hedged a meaningful portion of its oil and gas production for '09 at favorable pricing, thus mitigating the risk of volatile prices.
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