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Stock Analyst Update

The Week in Stocks: Sun Micro's Surge Fails to Impress Us

Plus, more consolidation in the oil patch, gold-miners get the merger bug, and more.

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On the heels of its best quarterly performance in quite some time, Sun Microsystems' (SUNW) share price is on a hot streak, and many investors are claiming that its turnaround is for real this time. But Morningstar analyst Mark Lanyon is unmoved and, thus, is leaving his fair value estimate for the hardware and software maker unchanged. In particular, Lanyon notes that the company's strong recent quarterly results were driven by market-share gains in midrange servers running on Sun's in-house Solaris operating software, a trend that he'd  previously predicted. But there was little in the results to suggest that the other planks of Sun's turnaround strategy were translating into concrete fundamental improvements. In Lanyon's view, the bulk of Sun's product line is still represented by what he considers yesterday's technology, and Sun will continue to struggle against quality competition from HP (HPQ), IBM (IBM), and Dell (DELL), among others, in each of its product and service offerings. 
 Full Analyst Report: Sun Microsystems

More Consolidation in the Oil Patch: Woodside Bids for Energy Partners
ATS Inc., a wholly owned subsidiary of Woodside Petroleum (Australia's largest publicly traded oil and gas company), announced a tender offer to purchase the outstanding shares of Energy Partners (EPL). Woodside is offering $23 per share in cash, conditional on Energy Partners' shareholders voting down  the merger with Stone Energy (SGY). Woodside's offer could rise to upward of $24 per share depending on Woodside's ability to invalidate two termination fees Energy Partners must pay in conjunction with its merger agreement with Stone. Morningstar analyst Eric Chenoweth is placing his fair value estimate for both Energy Partners and Stone Energy under review while he examines the deal. 
 Full Analyst Report: Energy Partners 
 Full Analyst Report: Stone Energy

All that Glitters: Goldcorp Seeks Friendly Takeover of Rival Goldminer Glamis
Morningstar analyst Parvathy Krishnan takes a closer look at goldminer Goldcorp's (GG) friendly takeover bid for Glamis Gold (GLG). Krishnan isn't surprised by the move given Goldcorp's acquisitive past. But she's concerned about the potential dilution of the deal to Goldcorp shareholders, especially given that those shareholders won't have the opportunity to vote on the deal. Further, deal synergies aren't a slam-dunk: Goldcorp management is essentially placing its faith in Glamis' growth prospects, particularly at the company's recently acquired Penasquito mine. On the plus side, Krishnan observes that Glamis' portfolio of mines and projects boast respectable operating margins, which should confer some downside protection to Goldcorp. Krishnan is placing Goldcorp and Glamis under review while she assesses the impact of this announcement on her fair value estimates.
 Full Analyst Report: Goldcorp
 Full Analyst Report: Glamis Gold

Calpine Needs a Miracle
Barring divine intervention, Morningstar analyst Paul Larson believes that nothing is going to save Calpine's (CPNLQ) debtholders from owning the entire firm. Thus, Larson still believes the shares are worthless. In Larson's view, the independent power producer's second-quarter results underscore the stock's dire future: The company revealed it had lost $1.4 billion year to date through June 30, 2006, bringing its accumulated deficit to $6.9 billion. Calpine now has $26.3 billion in liabilities and, excluding impairment charges, has generated only $200 million in operating profit year to date, which is only about one third the company's stated interest expense.
 Full Analyst Report: Calpine

Lowering Chico's Fair Value
After reviewing her discounted cash-flow assumptions and taking management's revised guidance for 2007 into consideration, Morningstar analyst Kim Picciola is lowering her fair value estimate for specialty retailer Chico's FAS (CHS). Although Picciola expected Chico's to have an off year in 2006, the malaise is likely to extend into 2007 and beyond due to poor merchandising, stale marketing, and the damping effect that recent investment in younger apparel brands has had on operating margins. As such, Picciola has pared back her overall revenue projections to account for a slowdown in same-store sales while also reducing her operating margin assumptions. Nevertheless, she remains confident in the company's long-term prospects, which remain buoyed by the strong Chico's brand, deep customer loyalty, and favorable market dynamics.  
 Full Analyst Report: Chico's FAS

Jeffrey Ptak does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.