Zacks Analyst Blog Highlights: SABESP, Callidus Software, Snap-On, Kirkland's and Joy Global

Business Wire, June 3, 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: SABESP (NYSE: SBS), Callidus Software, Inc. (Nasdaq: CALD), Snap-On, Inc. (NYSE: SNA), Kirkland's, Inc. (Nasdaq: KIRK) and Joy Global (Nasdaq: JOYG).

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Here are highlights from Monday's Analyst Blog:

Brazilian SABESP Makes a Splash

We are keeping our Buy recommendation on Companhia de Saneamento Basico do Estado de Sao Paulo, or SABESP (NYSE: SBS), which provides water and sewage services. The company posted solid results for the first quarter of 2008. With the short-term looking positive, the stock is still trading at an attractive valuation. And as we were expecting, Brazil was recently upgraded to investment grade by Standard & Poor's and by Fitch.

The company has benefited from the strength of the Brazilian real, which is expected to remain strong in the short term. SABESP continues to increase its efficiency indicators and with more aggressive investment budget for the 2007-2010 period, it will help to increase revenues in the medium-term.

Although the outlook for the water utility industry is below average relative to the S&P 500, SABESP continues to be well-positioned as a monopolistic water utility in the state of Sao Paulo. Its net operating revenues recorded a 5.2% increase year-over-year in Brazilian reals.

Callidus Runs Into U.S. Slowdown

We keep our Hold rating on Callidus Software, Inc. (Nasdaq: CALD), which is gradually transitioning its business towards Software as a Service and therefore expects license revenues to be lower in 2008. The company derives a bulk of its revenue from North America while international operations only contribute a minor percentage. Thus, any slowdown in the North America region hurts sales.

Callidus Software, with its next generation architecture, is positioned to expand its presence in the emerging enterprise incentive management (EIM) market. Since there are very few players operating in the EIM market, the company is the leading pure-play EIM vendor. However, the cautiousness regarding IT spending is leading to focus on areas more strategic than EIM applications. Until Callidus improves its ability to close sales and be more predictable, it will be not be able to forecast the license revenue.

Snap-On Now a Valuation Hold

We are forced to downgrade global tool-maker Snap-On, Inc. (NYSE: SNA) from Buy to Hold due to the stock's valuation. This, despite the company's strong showing over nine consecutive quarters.

The company's acquisition of a Chinese firm, Zhejiang Wanda Tools Co. Ltd., will expand its hot-forged hand tool manufacturing presence in an emerging growth market in the Asia-Pacific region. Little wonder that SNA's results for the first quarter of 2008 saw a 47% jump year-over-year. Earnings exceeded expectations by $0.16. However, global inflation brought the stock down by 3.9%.

Kirkland's Still Nicely Priced

The first quarter results of Kirkland's, Inc. (Nasdaq: KIRK), a specialty retailer of home decor in the United States, came as a pleasant surprise. While sales were up 2.1% year-over-year, its EPS were -$0.13 versus our estimate of -$0.52.

The upside was driven by a higher-gross margin and strong expense controls. These results show that Kirkland's is taking the right steps to weather the current storm. The company is focusing on cash flow and liquidity, closing unprofitable stores, and positioning its stores to profit when conditions finally improve.

We are now forecasting a profit in fiscal 2009. Even though the shares are up 141% year-to-date, we think KIRK is still cheap. We reiterate our Buy rating and our target price of $4.00.

Joy Global a Buy Up to $88

Joy Global (Nasdaq: JOYG) reported second quarter EPS of $0.86 -- well above the $0.70 reported in the same period a year ago -- due to rapid sales growth for both original equipment and aftermarket services. The company is in the sweet spot of the cycle.

To relieve the tight supply condition persisting in commodities such as iron ore, copper and coal, producers will need to increase investment spending on the mining-machinery that JOYG sells. We saw orders pick-up in the second quarter, with underground machinery bookings up 31% and surface mining up 101%.

Given the positive fundamental story, we recommend investors add shares of JOYG to their portfolio at the current price. Everything seems to be falling in place for the coal market. U.S. power generation is returning to normal levels and coal-fueled plants are under construction. Power generators need to rebuild inventories. U.S. coal companies are swing suppliers of metallurgical and thermal coal to the international economies, at least until Australia solves rail and port facility issues and China significantly boosts production capacity.