Wednesday, December 31, 2008

Ceradyne (NASDAQ:CRDN): Downgraded to Hold at Morgan Joseph

Little known Morgan Joseph is out with a downgrade on Ceradyne (NASDAQ:CRDN). Firm is lowering their rating to Hold from Buy after their due diligence shows Ceradyne will not ship any of its new X-SAPI body armor in 4Q08 as a result of a contract protest by a competitor.

If the matter had been settled quickly, Ceradyne might have made shipments by year-end. Instead, the Army has decided to start from scratch and seek new bids from suppliers. Those bids are expected to be submitted in mid-January, with orders possible as soon as the end of the month.

Firm is significantly lowering their 2009 estimates due to lower body armor shipments, pricing pressure on ceramic solar cell crucibles, and new accounting treatment of the company's $120mm convertible debt. They estimate total sales of $599.0mm, gross profit of $204.7mm, EBITDA of $135.5mm, operating income of $97.1mm, and net income of $63.9mm or $2.30 per diluted share. They had expected 2009 sales of $641.2mm, gross profit of $240.9mm, EBITDA of $171.1mm, operating income of $130.1mm, and net income of $84.1mm or $3.17 per share.

Morgan Joseph is cancelling their $22 price tgt on CRDN and are currently providing no new tgt.

Notablecalls: CRDN bulls are definitely not going to like this. I also suspect this is the reason why CRDN issued that stealthy earnings warning 2 weeks ago. Note that consensus for 09 EPS stands at $2.61 vs Morgan Joseph's $2.31.

I really do not see CRDN getting crushed on this call but 1pt worth of downside may be in the cards.