NCI Building Brings Down Costs

NCI Building Systems, Inc. (NCS) is one of the largest integrated manufacturers of metal products for the North American non-residential construction industry. We expect the company to report second quarter EPS of $0.31 on June 3, down 6% y-o-y due to lower gross margin as a result of higher steel prices.

NCI is also experiencing soft market conditions in the Metal Components and Engineered Building Systems segments. However, the company is committed to stringent cost containment despite a rising order backlog. We applaud the move of taking costs out of the system, since we expect a deceleration in commercial construction activity in this year.

While the relative advantage of metal products holds a long-term promise of further gains in market share, in the interim, NCS will have to deal with the risk of a further rise in steel prices. Our target price is $31.00.

KEPCO Pressured by Cost Risks

Following a 61% decline for KEPCO (KEP) in 1st quarter 2008 net income over the previous year (when the Korean Won appreciated against the U.S. dollar, which benefited import-intensive companies such as utilities with significant dollar-denominated debt), we expect much-improved performance and modest price appreciation going forward. KEPCO is the dominant player in Korea's electricity sector.

The company continues to be well-positioned to capitalize on growth opportunities in this market and to benefit from the current industry restructuring initiated by the Korean government. However, in the scenario of volatile global energy prices, Chinese embargo on coal exports and higher fuel costs, stagnation at electricity rates, KEP continues to face risks of increasing costs.

Thus, KEPCO often reports lower operating earnings and net income. Therefore, we maintain our Hold recommendation on KEPCO common stock with a six-month target price of $17.50.

Remaining Cautious on AT&T

AT&T's (T) acquisition of BellSouth has created a telecom services giant, and is expected to bolster free cash flow generation, higher expected dividends and share buybacks moving forward. While last quarter's results were above our estimates, we maintain a cautious view as recessionary economic factors may impact service demand.

With the recent integration of its nationwide GSM network and with the ownership of Cingular, through the merger with BellSouth, AT&T is now in a position of great strength in the wireless sector. Revenues are also being propelled by Apple (AAPL) iPhones, as AT&T is the exclusive carrier partner in the US for this handset.