Zacks Bull and Bear of the Day Highlights: Animal Health International, Sycamore Networks, Penske Automotive Group, Amkor Technology and PepsiCo

Business Wire, Sept 16, 2008

CHICAGO -- Zacks Equity Research highlights Animal Health International, Inc. (Nasdaq: AHII) as the Bull of the Day and Sycamore Networks, Inc. (Nasdaq: SCMR) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Penske Automotive Group (NYSE: PAG), Amkor Technology (Nasdaq: AMKR) and PepsiCo (NYSE: PEP).

Full analysis of all these stocks is available at http://at.zacks.com/?id=2676.

Here is a synopsis of all five stocks:

Bull of the Day: Animal Health International, Inc. (Nasdaq: AHII)

Animal Health International reported lower-than-expected fourth-quarter net income of $2.7M, or EPS of $0.11. Nonetheless, EBITDA increased 27.2% year-over-year after adjusting for a one-time charge in the comparable quarter last year, and was driven primarily by an increase in sales volume.

We are encouraged by the expansion of gross profit margins and continue to believe the company is well positioned to take advantage of currently challenging economic conditions to grow its production animal business via acquisition. We retain our Buy recommendation at current levels.

With a significant number of products expected to lose patent protection over the next several years, we believe the company is well positioned to enhance margin expansion through the incremental addition of private label products to the product mix. We have valued AHII on a forward price/earnings basis, as well as a comparison to similar firms in the animal health products sector. Our $9 price target represents a 13.9 times fiscal 2009 EPS of $0.65.

Bear of the Day: Sycamore Networks, Inc. (Nasdaq: SCMR)

Sycamore Networks continues to experience disappointing financial performance as revenues and earnings are trending lower on a sequential quarter basis. The company's fourth quarter fiscal 2008 financial results were significantly below our expectations, primarily attributed to a contract loss from one of its major customers.

On September 5, Sycamore announced fiscal fourth quarter 2008 earnings results. Total revenue of $15.1 million was down 60.3% from the year-ago quarter and down 24.9% sequentially. Gross margin was 28.7% compared to 46.5% in the prior-year quarter. Adjusted diluted EPS, excluding impairment charges, was a loss of $0.03 for the fourth quarter of fiscal 2008.

We remain concerned that Sycamore may have difficulty generating sustainable business from carriers for its product capabilities as larger vendors address these markets with competing solutions. Furthermore, demand for optical networking appears to be more favorable than in past years, but Sycamore's financial reports suggest year-over-year revenue decline in spite of the acquisition of Eastern Research in 2006. We downgrade our rating to a Sell due to a lack of near-term visibility for improvements and concern that business will depend on only a limited number of customers.

We do not find any meaningful investment catalysts for the company that may drive a near-term valuation improvement. According to our view, revenue will remain lumpy through Fiscal 2009 as Sycamore is dependent on only a limited number of customers for revenue. Expenditures are expected to increase due to new product introductions and integration related costs associated with the acquired entity.

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Penske Automotive Group (NYSE: PAG)

Penske is well positioned among the auto retailer peer group. The company's specialty and luxury product mix offer opportunities for long-term growth. Additionally, we are encouraged by positive same-store sales in used vehicles. However, rising interest rates, challenging industry conditions and a leveraged balance sheet dampen our outlook on the stock. Thus, we rate the shares a Hold with a six-month target price of $14.

Penske Automotive is pursuing a strategy of achieving internal growth from its existing dealerships, as well as from strategic acquisitions. The company historically has grown 6% faster than its peers and the goal is to grow 10% per year for the next few years. In the near term, this trend is likely to continue, as the company is the exclusive distributor of the Mercedes-Benz smart fortwo. PAG estimates that it will deliver 20,000 to 25,000 vehicles in 2008 and will generate between $0.08 and $0.12 per share in incremental earnings.

A key part of the company's strategy is to grow in Europe, a location where business has grown from $900 million to $4.5 billion in the past five years. In 2007, the company acquired 11 franchises that are expected to generate around $450 million in annualized revenue -- $300 million in the US and $150 million internationally.

Amkor Technology (Nasdaq: AMKR)

Amkor Technology's June quarter revenue was just short of the consensus although the EPS exceeded. Revenue was short of the management's own expectations. Forward guidance is for a 4-6% revenue increase in the third quarter. The company suffered a negative impact from its ERP implementation in the Philippines, which is not expected to continue in the following quarters.