Zacks Analyst Blog Highlights: Canadian National Railway, Aracruz Celulose, Ciena Corp., Avis Budget Group and Quality Systems

Business Wire, June 30, 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: Canadian National Railway Company (NYSE: CNI), Aracruz Celulose S.A. (NYSE: ARA), Ciena Corp. (Nasdaq: CIEN), Avis Budget Group (NYSE: CAR) and Quality Systems Inc. (Nasdaq: QSII).

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Here are highlights from Friday's Analyst Blog:

Canadian National Keeps on Track

We are maintaining our Hold on Canadian National Railway Company (NYSE: CNI) as well as our $52 target price. CN will report second quarter results on July 21. We are retaining our diluted EPS estimates at $3.52 for 2008 and at $3.98 for 2009. We expect results to reflect the effects of recent poor weather in the Midwest, higher fuel costs and a stronger Canadian $, though pricing should continue robust.

We expect volume growth in key segments combined with strong pricing power to drive revenue growth over the near term. Specifically, in intermodal, the opening of the Prince Rupert Intermodal Terminal in the third quarter of 2007 will allow CN to leverage the potential of the growing container trade between Asia and North America.

Brazilian Aracruz Getting Pricey

We are keeping our Hold recommendation on Brazil-based pulp-producer Aracruz Celulose S.A. (NYSE: ARA) with a price target of $80. The company's multiple expansion plans are solid and we believe that it is going to enhance the value of the stock over the long term.

Moreover, the international pulp and paper markets remain tight, and the short-term outlook for pulp prices is positive. The recent upgrade of Brazil to "investment grade" by Standard & Poor's and by Fitch is also encouraging for Brazilian stocks.

However, the continued strength of the Brazilian real [monetary unit] undermines Aracruz's exports and increases its real-denominated production costs. Additionally, the higher inflation and interest rates throughout the world and particularly in Brazil are the sources of great concern.

Expectations High on Ciena Corp.

We maintain a Hold rating on the shares of Ciena Corp. (Nasdaq: CIEN). The company reported strong margins in the first half of FY 2008, and looks poised to maintain this throughout the year.

Its FlexSelect products allow carriers to transition networks to carrier-grade Ethernet, one of the fastest growing technologies in telecommunications. In order to expand its Ethernet offering from infrastructure throughout the network, including metro and customer premise locations, Ciena completed the acquisition of World Wide Packets.

Ciena has experienced a rapid re-acceleration of revenue and profits, driving the stock price up dramatically over the past several years. While we are impressed with recent results from the company, we are concerned that expectations have become very high in spite of a recent pull-back.

Economy Keeps Avis a Hold

The near-term outlook for Avis Budget Group (NYSE: CAR) is difficult to ascertain. The truck rental business is experiencing pricing pressure and the economy is weakening. However, the management is now more focused on operations after the restructuring in 2007.

Revenue enhancement and cost cutting initiatives have been implemented that should fuel significant financial improvements. However, earnings visibility is limited, especially with a deteriorating economy. Therefore, the Hold rating is maintained for Avis Budget Group.

Volatility for Quality Systems

We are optimistic about Quality Systems Inc.'s (Nasdaq: QSII) earnings growth as a result of the continued strong revenue growth and improvements in gross margin. Sales growth continues to be driven by the strength of the NextGen division. However, with gross margin and operating margin at significant highs, substantial further improvement may be difficult. Our rating is Hold.

The acquisition of Healthcare Strategic Initiatives expands the company's presence in the revenue cycle management market. The QSI division market, largely mature dental practices, is undergoing consolidation and this group pulls down overall growth of the company's topline.

The risk to earnings growth is the continued strong investment emphasis in research and development and increase in selling, general, and administrative expenses. Historically, the company has expended a significant percentage of revenue on product development and management believes that significant continuing product development efforts will be required to sustain growth.

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