CITIGROUP DOWNGRADES VERASUN, OTHER ETHANOL STOCKS
Citigroup analyst David Driscoll says in the last 10 days, the world has changed in the corn market, with massive flooding causing irreparable damage to this year's crop and pushing corn prices up $1. He notes that as a result of this unprecedented weather event, ethanol margins have plummeted over the same 10-day time span, with small and mid-size ethanol producers now running at substantial losses against cash costs.
Driscoll says he's reducing EPS estimates for his ethanol companies and dropping ratings from buy to sell on pure play ethanol producers Verasun Energy (VSE) and BioFuel Energy (BIOF), while taking Archer-Daniels-Midland (ADM ) down to a hold, as ADM has other businesses that could possibly mitigate problems in ethanol.
JP MORGAN UPS NORTEL TO OVERWEIGHT FROM NEUTRAL
JP Morgan analyst Ehud Gelblum says that after four years at neutral, he's finally upgrading Nortel Networks (NT) to overweight following its analyst day on Wednesday. He says he now has a much better feel for how Nortel will hit a 10% operating margin over the next one-two years, noting its goal is to bring operating margin to 13% by 2011.
Gelblum says Nortel stands to save $130 million in costs annually by exiting the IMS and WiMAX base station businesses. Also, two of Nortel's four major divisions -- Metro Ethernet Networks and Enterprise -- are entering product cycles in the second half of 2008 and into 2009, as 40G optical, carrier Ethernet, and Unified Communications all begin to ramp.
He raises $0.65 2008 EPS estimate to $0.68, and $0.87 for 2009 to $0.95.
UBS CUTS DREAMWORKS ANIMATION CUT TO SELL FROM NEUTRAL BY
UBS analyst Michael Morris says Dreamworks Animation SKG's (DWA) risk-reward has become less attractive as enthusiasm over its Kung Fu Panda movie has driven up the shares. He notes the movie's $60 million opening weekend domestic box office performance exceeded his estimate of $45-$50 million.
Morris says DWA's recent share price suggests investors expect average domestic box office receipts of $202 million for all future releases, above DWA's historical average, including the Shrek franchise. He notes DWA's last five films, excluding Aardman co-productions, have averaged $191 million in domestic box office.
Despite downgrading the stock, he raises his 2008 EPS estimate to $1.52 from $1.40.