Costs, Visibility Keep Heinz a Hold

Growth in Heinz's (HNZ) domestic businesses, strengthening international operations, and the reallocation of resources in favor of key brands are major positive trends for the H. J. Heinz Company, However, volume in the U.S. Foodservice business declined in the last two quarters; in addition, the gross margin is declining due to commodity costs. Nelson Peltz, a shareholder activist, was able to win only two seats on the Board.

With positive earnings surprises or in line earnings being reported in the last six quarters, the two new Directors (one being Peltz himself) will have difficulty promoting Peltz's agenda. The Hold recommendation is maintained.

Heinz stock has traded in a P/E multiple range of 11 to 21 over the last five years. At the current P/E of 16.9, we do not expect Heinz stock to outperform as the gross margin is expected to remain constrained due to rising commodity costs.

Management expects commodity cost inflation to be at a greater in fiscal 2008 than in fiscal 2007. The target price of $47.25 is based on a 18.5 P/E on the trailing 12-month earnings.

AZN Reliant on Existing Drugs

AstraZeneca PLC (AZN) is engaged in the research, development, manufacturing and marketing of ethical (prescription) pharmaceutical products. The company ranks among the top pharmaceutical companies in the world based on revenues and global sales force. It is a leader in cardiovascular, cancer and gastrointestinal drugs. Key drugs such as Crestor, Seroquel and Symbicort will continue to be the driving force of growth until the company can monetize its pipeline.

Generic competition will eat into revenue growth, but productivity initiatives should pay off in the form of healthier margins and mid-single digit earnings growth for the next few years. We see $45 as fair-value. Our rating is Hold.

We think the shares trade a relatively attractive level given the potential that management can deliver on its goals and significantly add to topline growth through pipeline successes. The current P/E of 9.7x is well below the large-cap pharmaceutical peer-group average of 15.5x.

Buyout Favorable for Brasil Telecom

We are keeping our current Buy recommendation on Brasil Telecom Participações S.A. (BRP). The company posted better-than-expected results in each quarter of 2007, and the short-term outlook remains positive.

The company also has solid cash flow, decent operating margins in the wireline business, and an attractive valuation. Additionally, the growth in the wireless and the broadband segments are encouraging and should continue in future quarters.

The news on the merger with Telemar (TNE) was not well received by the market, but we still believe it will be positive for both companies. We think the stock is trading at a highly attractive valuation.

In fact, we believe the Telemar deal is great news for Brasil Telecom. All considered, we are keeping our current Buy recommendation. Our target price is US$96.75, which is based on an EV/2008 estimated EBITDA of 3.5x, close to the industry mean.

Relationships Make SMSI a Buy

Smith Micro (SMSI) is a developer of wireless communications software and utility software for multiple OS platforms. It has significant relationships with several large cellular providers and OEM cell phone manufacturers.

Verizon Wireless (VZ) reported good gains in data revenue and subscribers in the fourth quarter of 2007. Music download software fro Smith Micro is going to be bundled with certain phones from Verizon.

The company has a number of strong strategic relationships with large cellular providers such as Verizon, Sprint Nextel Corporation (S), Alltel Corporation and Dobson Communications, four of the top five cellular data services providers in North America, and Nokia (NOK), the world's largest cell phone manufacturer.

Smith Micro has a broad product portfolio, strong brand recognition and an experienced management team. The balance sheet is very healthy with a growing cash position and no debt. Acquisitions are adding to revenue and should have a positive impact on gross margins.