CBE Posts Good Recovery In Organic Revenue Growth, Poor Conversion For New 2010 Guidance Stalls Shares

Analysts at Sterne Agee reiterate their "buy" rating on Cooper Industries Ltd (NYSE: CBE), while reducing their estimates for the company. The target price for CBE is set to $53.

According to Sterne Agee, “CBE reported 2Q10 adjusted EPS of $0.80 vs. SA estimates of $0.78 and consensus of $0.76 on a 5.3% (4.8% organic) sales increase.”

“Despite a $0.04 positive EPS surprise, positive book-to-bill for orders, recently announced price increases in 2Q10 and an expected $0.04-$0.05 4Q10 favorable tax benefit, CBE only raised 2010 EPS guidance to $2.90-$3.05 from $2.85-$3.00, significantly disappointing investors expecting stronger 2010 EPS conversion in CBE’s revised 2010 outlook. CBE mgt. noted the guidance may prove “overly prudent” but we sense potential (possibly significant) additional acquisitions may also be a factor,” the analysts say.

“With the return of positive organic revenue growth and improved orders, we believe a moderate premium is appropriate given that CBE should be able to leverage its much better cost structure implemented since late 2008,” Sterne Agee adds.

Sterne Agee has lowered its EPS estimate for 2010 from $3.25 to $3.20.

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