Zacks Analyst Blog Highlights: Axis Capital, BJ Services, Intuitive Surgical, ITT Educational Services and Waddell & Reed

Business Wire,  July 3, 2008  

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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: Axis Capital Holdings Ltd. (NYSE: AXS), BJ Services Company (NYSE: BJS), Intuitive Surgical Inc. (Nasdaq: ISRG), ITT Educational Services Inc. (NYSE: ESI) and Waddell & Reed (NYSE: WDR).

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Here are highlights from Wednesday's Analyst Blog:

Axis Capital Under Some Pressure

Axis Capital Holdings Ltd.'s (NYSE: AXS) first-quarter operating earnings were below our expectations from a lower level of premiums written than anticipated, specifically in the reinsurance segment, and a higher level of large individual risk losses worldwide. We continue to view the shares of the company as a Hold.

Although we think the company has been able to benefit from the hurricane-related price hardening markets of a few years ago, going forward, we would expect additional benefits to be somewhat more limited. Our six-month price target of $30.25 per share, down from $37.40 per share, incorporates a price-to-book multiple of 0.90x to our fine-tuned diluted book value estimate of $33.60 per share for December 31, 2008.

Positives for BJ Accounted For

BJ Services Company (NYSE: BJS) remains well-positioned to continue benefiting from the still favorable macro environment. The company's worldwide operations are primarily driven by the number of oil and natural gas wells being drilled, the depth and drilling conditions of such wells, the number of well completions and the level of workover activity.

However, the pressure pumping market continues to remain in an over-supplied state, resulting in pricing pressures and margin erosion. While the demand side of the equation is expected to continue improving, it may take a while for the supply overhang to work itself through. So, while valuation has become reasonable, these headwinds continue to keep us on the sidelines.

Intuitive Surgical on the S&P

Standard & Poor's announced that it replaced Bear Stearns with Intuitive Surgical, Inc. (Nasdaq: ISRG) after the close of trading on May 30. Without direct competition, Intuitive's main challenges to growth are overcoming the capital investment challenges and gaining physician adoption for each procedure specialty.

Earnings growth may find some pressure from higher expected operating expenses to support growth. Selling, general and administrative expenses are expected to increase in the future to support the company's expanding business. We believe the stock is fairly valued at roughly 59x our 2008 EPS estimate, or at roughly a 1.5x P/E/G on 2008 EPS. Our price target moves to $291.

High Bar Set for ITT Educational

ITT Educational Services, Inc. (NYSE: ESI) is demonstrating steady revenue growth, primarily through opening new campuses, expanding existing campuses, offering new degree programs, and new student enrollment growth. Though the company reported an outstanding first quarter, higher advertising expenses and the costs incurred from opening new campuses are concerning. The Hold rating is maintained.

ITT Educational Services is currently selling at 20 times trailing 12-month EPS, reflecting the company's revenue and earnings growth profile. Revenues have grown at a 13% five-year compound annual growth rate. Over the last few years, the stock has traded in a wide P/E range of 16 to 40. The target price is $90.75, which is an 18 P/E multiple on trailing twelve month earnings.

Equities Cap Waddell & Reed Gains

Waddell & Reed's (NYSE: WDR) assets under management are highly concentrated in equities. As the financial markets in general and the equity markets in particular are expected to remain volatile in the near future, we suspect that such a market situation may put a cap on the upward potential of the share price in the near-to medium-term.

Based on WDR's 1Q08 results and considering its fundamental strengths, we are slightly adjusting our FY08 and FY09 earnings estimates to $1.74 per share and $2.28 per share, respectively. WDR is currently trading at 20.1 times the consensus estimate for FY08, a 45% premium to 13.9 times for the peer group median.

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