Friday, July 14, 2006

Calls of Note Part 2

- JP Morgan adds Itron (NASDAQ:ITRI) to their Focus List with a price target of $69 (July 31st, 2007), based on an assigned multiple of 25 times FY07 PF EPS, aligned with ITRI's 12-month mean P/E multiple. The price target represents a potential 29.8% return of yesterdays closing price of $53.15.

ITRI is the leading supplier of solid state electric meters (>80% share) and wireless AMR modules (>50%) for water, gas and electricity utilities in N.America. The market is 25-30% penetrated, and penetration should double through 2015, fuelling revenue CAGR of 10%, from which ITRI should derive 15-20% EPS CAGR, owing to leverage of fixed costs and a mix shift to higher margin software.

According to the firm the utilities industry operates with 15-20 year product cycles and ITRI is in a sweet spot. Demand is strong owing to 1) strengthening balance sheets for the utilities industry, 2) regulatory mandates supporting time-of-use based billing, 3) growing industry awareness of the ROI value proposition that comes from automated meter reading.

International opportunities are emerging, representing potential upside to estimates. 80% of the 1.2 billion electric meters outside of the US are likely to be upgraded in the next 10-15 years.

Reits Overweight.

Notablecalls: I suspect it caught the eye of some short-sellers when it broke the 200 day MA. Maybe it will bounce.

- Piper Jaffray is lowering their Lunesta revenues from $170M to $153M based upon slower- than-expected Rx trends. Firm notes they struggle to reach 2006 guidance of $650M on Lunesta given the current Rx trajectory, and lower their 2006 assumption from $700M to $633M. They continue to model Xopenex MDI below $90M guidance, now at $56.5M. They lowered Q2 EPS from $0.10 to $0.07 and lowered 2006 top and bottom lines to $1,213M and $1.21. Continues to be cautious on SEPR as a standalone entity and wonders if SEPR will lower product guidance on its earnings call on July 21, but suspect that the acquisition thesis might resurface after SEPR reports Q2.

Maintains Market Perform and $53 tgt.

Notablecalls: I don't see SEPR experiencing much downside on the call. Prudential was spot on on
July 10! SEPR is down 10%+ since then.

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