Zacks Analyst Blog Highlights: BHP Billiton, Rio Tinto, D.R. Horton, Inspire Pharmaceuticals and Allergan Pharmaceuticals

Business Wire,  May 14, 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: BHP Billiton Ltd. (NYSE: BHP), Rio Tinto (NYSE: RTP), D.R. Horton, Inc. (NYSE: DHI), Inspire Pharmaceuticals, Inc. (Nasdaq: ISPH) and Allergan Pharmaceuticals (NYSE: AGN).

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Here are highlights from Tuesday's Analyst Blog:

Hold BHP Billiton in Near Term

BHP Billiton Ltd. (NYSE: BHP) is the world's largest diversified resource company with operations in 25 countries. Notwithstanding the associated anti-trust issues, we believe a potential merger between BHP and Rio Tinto (NYSE: RTP) can deliver synergy benefits and offset rising operating costs, which have been trending upwards.

In addition, the merged company will become the world's largest producer of copper and aluminum, and the second-largest provider of iron ore. Nonetheless, given that Rio Tinto rejected the terms of the original proposal, the deal seems far from certain. We retain our Hold recommendation on shares of BHP.

We have valued BHP using the P/E valuation metric and forward earnings estimates. Currently, the stock is trading at 14.6x our FY08 earnings estimate of $5.68 per ADR. While the company is benefiting from strong demand and high commodity prices, negative impact on the company's operations from a declining dollar, high operating costs and concerns about an economic slowdown leads us to put a cautious view on the stock.

Pressures Keep a Hold on Horton

D.R. Horton, Inc. (NYSE: DHI) reported a second quarter loss of $4.14 per diluted share. This is due to weaker gross margins, higher-than-anticipated overhead costs, and larger-than-expected charges for inventory impairments and write-offs of deposits related to land option contracts. Year-to-date, the company has been successful in generating cash flow, lowering land lots owned and optioned, and cutting the number of homes in inventory.

Also, the company announced that it would cut the quarterly dividend by half to $0.075 per share in an effort to preserve $94.5 million in annual capital. For the remainder of FY08, we expect gross margin pressure to continue from weaker average selling prices and increased incentive use. Our target price is $16.75.

Inspired by Inspire Up to $6.50

Inspire Pharmaceuticals, Inc. (Nasdaq: ISPH) is a specialty pharmaceutical company engaged in the development and commercialization of treatments for respiratory and ophthalmologic disorders. Currently, the company has three products on the market and a robust pipeline. We see strong top-line growth from 2008 and beyond.

The company has a strong collaborative alliance with Allergan Pharmaceuticals (NYSE: AGN) for key products that treat dry eyes and allergic conjunctivitis. The current price is attractive. We maintain our Buy rating on shares of Inspire with a price target of $6.50.

We arrive at this price target by using specialty eye-care pharmaceutical industry average P/E ratio of 20x, multiplied by our estimated 2011 EPS of $0.58, discounted by 20% for three year. We believe the company can trade in-line with biotechnology stocks, as Denufosol and epinastine progress in the clinic.

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