Zacks Analyst Blog Highlights: Genuine Parts, E.W. Scripps, Universal Technical Institute, China Architectural Engineering and China Unicom

2008-04-21 12:14:24 -

- 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: Genuine Parts Company (NYSE: GPC), E.W. Scripps Company (NYSE: SSP), Universal Technical Institute (NYSE: UTI), China Architectural Engineering (AMEX: RCH) and China Unicom (NYSE: CHU).

See the latest posts to the Analyst Blog:

www.zacks.com/blog/post_info.html?g=6

Here are highlights from Friday's Analyst Blog:

GPC Working Thru Slowdown

Genuine Parts Company (NYSE: GPC) has undertaken various initiatives such as product line expansion, penetration into new markets, and cost-saving activities to boost sales and earnings. Genuine Parts has been diversifying its revenue base to reduce excessive dependence on the automotive replacement market.

The company's industrial businesses are improving as the U.S. economy recovers. The balance sheet is strong. However, our optimism is dampened by the slowdown in the replacement market and rising input prices. Considering these factors, we maintain our Hold recommendation with a target price of $43.00.

Near-Term, E.W. Scripps Still a Hold

E.W. Scripps Company (NYSE: SSP) is benefiting from rapid growth in its cable networks, where high-teens revenue growth and expanding margins are fueling rapid EBITDA growth. However, management has indicated that cable revenue growth is decelerating in the high-single digits (8%-10% expected in FY 2008), while ad revenue in the newspaper segment is rapidly decelerating, hurt by the slowing job and real estate markets and a battered US auto industry, in addition to a secular industry decline.

To unlock the value in the company's fast-growing TV Networks and Online businesses, management recently decided to spin these operations off into a separate company from its moribund Newspaper business. In our view, this will clearly be a value-enhancing transaction.

Universal Tech Margins Slim

Despite modest revenue growth, the operating margin at Universal Technical Institute (NYSE: UTI) continues to deteriorate, in part due to an aggressive expansion program. In addition, a declining capacity utilization rate and lower student enrollment continue to pressure both the operating margin and earnings.

Also, management discontinued issuing guidance after the second fiscal quarter of 2006. With the stock discounting most of the adverse developments and trading at a historically low valuation level, Universal Technical Institute is rated a Hold.

Due to the expectations for negative earnings growth over the near-term and management's discontinuing the issuance of guidance, the stock is better valued on a Price-to-Sales (P/S) basis. Universal Technical Institute's stock has traded in a wide P/S multiple range of 1.5 to 5.2 since the company's IPO in December, 2003, but has mostly averaged in the range of 2.0 to 3.6.

Initiating on China Architectural

As the leader in China's high-end curtain wall systems market, China Architectural Engineering, or CAE (AMEX: RCH) is well-positioned to leverage the growth potential in commercial construction market. Its revenue and earnings in 2007 increased more than 30% over 2006.

We expect that CAE to grow its earnings over 20% annually for the next five years. However, a possible slowdown in the Chinese economy and its current capital market situation limit its stock's upside potential in the near future. As a result, we are initiating Hold rating on CAE's stock.

CAE has gained a leading position in this industry in China. CAE has worked with world-renowned architects and building engineers from China and other countries and has completed over 100 large, complex and unique projects throughout China, Middle East and Southeast Asia, including numerous award-winning landmark buildings such as National Grand Theater in Beijing and National Conference Center in Vietnam.

Stiff Competition for China Unicom

Although its revenue only increased 4.4% year-over-year, China Unicom's (NYSE: CHU) net income for 2007 increased 14.4% over 2006 due to value-added services and cost controls. That being said, China Unicom will face stiff competition in the future as it operates two networks at the same time, diluting its focus.

All told, the stock appears fairly valued at current levels, considering the possible restructuring in telecom industry in China and its 3G opportunities in China. Thus, we maintain our Hold recommendation.

Currently, China Unicom is trading at a forward multiple of 23.9x our 2008 EPS estimate, which is higher than industry mean and the industry median. China Unicom is trading at a forward multiple of 22.0x our 2009 EPS estimate, which is still higher than the industry mean and the industry median. We reiterate our Hold recommendation with a target price of $22.50 per ADS based on a modest increase in the company's price/earnings ratio, which we believe is a more appropriate valuation measure given the possible breakup of the company.

Get the full analysis of all these stocks by going to at.zacks.com/?id=2649.

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