Upping Cytori Therapeutics to Buy

We are turning positive on Cytori Therapeutics Inc. (CYTX) and believe now is an excellent time to step up and buy the name ahead of what we believe will be a very positive next several quarters. Cytori should recognize significant Celution System product revenues in the second quarter. We are upgrading the name to Buy.

There are several reasons that investors should own Cytori. The company is a leader in adipose-derived stem cells and is already recording revenues from sales of the Celution System. The management's guidance is for product sales of $10 million to $12 million, right in-line with our thinking at $11.36 million. Ultimately, the clinical data will determine the pace at which product sales ramp in the next several years.

We have been encouraged by the small clinical data seen so far using Cytori's technology. The company has clearly developed a better mousetrap when it comes to quickly and efficiently harvesting adult stem cells. Cardiovascular applications represent a wildcard to the Cytori story. Positive data from the PRECISE or APOLLO trials would provide a sizable bump to the shares.

Cytori is in an enviable position where they can generate clinical data that could have an immediate impact on sales of already approved products. After a very encouraging first quarter and signs that the second quarter is also looking very solid, we are comfortable with our long-term projections that show profitability in 2011.

We think 2008 has the potential to be a very exciting year for Cytori and we encourage investors to stay tuned. We see $16 as fair-value based on $268.4 million in revenues in 2012 generating $1.87 in EPS. We apply an industry-like 25x multiple and discount back to present day at 25 present.

Sell-Off of PMI Group Continues

PMI Group's (PMI) first-quarter net operating loss of $3.37 per diluted share was substantially worse than the estimates. The results suffered from increased losses in the U.S. Mortgage Insurance Operations and the impairment of PMI's investment in FGIC, which more than offset the higher net income from International Operations.

PMI's combined ratio worsened significantly while the claim rates and average claim sizes increased considerably. We suspect the company may need to raise capital in the coming months in order to satisfy the requirements of the rating agencies. Hence, our Sell rating on the shares remains unchanged.

We have further reduced our FY08 and FY09 estimates to a negative $7.50 per share and a negative $1.10 per share respectively. At current levels, shares of PMI trade at 0.13x PMI's 1Q08 book value of $27.58 per share, which is significantly below its historical 2.2x high.