Zacks Analyst Blog Highlights: Crocs, Cosi, Inc., Panera Bread, ITT Educational Services and Sallie Mae

Business Wire, April 16, 2008

CHICAGO -- 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: Crocs (Nasdaq: CROX), Cosi, Inc. (Nasdaq: COSI), Panera Bread (Nasdaq: PNRA), ITT Educational Services (NYSE: ESI) and Sallie Mae (NYSE: SLM).

See the latest posts to the Analyst Blog:

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

Here are highlights from Tuesday's Analyst Blog:

Downgrade for CROX on News

On April 14, Crocs (Nasdaq: CROX) stunned investors by announcing that its results for 2008 would fall well short of its previously issued guidance. The company now expects first quarter revenue of $195-$200 million and EPS of $0.08-$0.13, excluding a one-time charge. For the full year, Crocs expects sales revenues to increase between 15% and 20% over 2007 with EPS of $1.70-$1.80, excluding one-time charges. On February 19, management's guidance called for revenues of $1.16 billion (37% annual growth) and EPS of $2.70.

Given the size of this earnings miss, management's credibility will be called into question. That, combined with the company's operational issues, will continue to pressure the stock. As a result, we are downgrading the stock from Buy to Hold. The company is holding a conference call to discuss its revised outlook. The company is scheduled to report first quarter results on May 1.

At $13 per share, CROX is currently trading at 8.0x our 2008 EPS estimate and 8.0x our 2009 EPS estimate. Crocs growth rate is slowing faster than we expected, and that should pressure the company's share price. Our target price of $13.50 is 8x to 9x our 2008 EPS estimate, which is reasonable given the company's slowing sales growth and contracting profit margins.

Can Cosi Meet Expectations?

Cosi, Inc. (Nasdaq: COSI) lost control of its operations in 2006 as it rapidly added units to meet Wall Street expectations. Traffic has been declining, a problem that management attributes to lack of proper site selection of stores opened in 2H06, and poor management training, particularly for staffing and maintenance. Volume declines at these restaurants stem from a wide range of issues, including low traffic locations, signage, parking and service defects.

Cosi has replaced several VPs and restaurant managers, and has slowed growth plans for company-owned stores. However, Cosi maintains an aggressive growth plan for its franchise system (25-35 franchise restaurants in 2008), a questionable strategy when it lacks a firm grip on its system, and cash flow margins sag. We d like evidence of progress before rebuilding positions in the stock.

The bakery cafe (sandwich and salad) segment of the fast-casual market is dominated by Panera Bread (Nasdaq: PNRA), which has 1,167 units in 38 states. Au Bon Pain is the distant second player, with 230 units (in 21 U.S. states and South Korea, Thailand, Taiwan) followed by McAlister's Deli (220 units in 19 states), Atlanta Bread Company (160 units in 27 states), Cosi (141 units) and Corner Bakery (90 units in seven states and Washington D.C.).

Education on ITT Educational

ITT Educational Services (NYSE: ESI) is demonstrating steady revenue growth, primarily through opening new campuses, expanding existing campuses, offering new degree programs, and new student enrollment growth. However, higher advertising expenses and the costs incurred from opening new campuses are concerning.

The stock's decline discounts the concern over Sallie Mae's (NYSE: SLM) more restrictive student lending practices announced in January. For the full year of 2007, the company delivered earnings of $3.71 per diluted share, up 36.4% from $2.72 reported in 2006.

Revenue grew by 14.7% year-over-year to $869.5 million driven by strong growth in new student enrollment, continued improvement in the retention rate, and an increase in tuition fees by 5%. Revenue per student increased 3.5%. Despite higher marketing and advertising expenses related to the company's aggressive campus and program expansion initiatives during the year, the operating margin expanded 380 bps to 27.8% versus 24.0% in 2006.

For the full year 2008, earnings are expected to be in the range of $4.50 to $4.60 per diluted share. For 2008, quarterly marketing expenditures are expected to increase year-over-year in the range of 10% to 15%. ITT Educational Services is currently selling at 16.9 times trailing 12 month EPS, reflecting the company's revenue and earnings growth profile. Revenues have grown at a 13.1% five year compound annual growth rate (CAGR).

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

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