Monday, KeyBanc Capital downgraded Zep, Inc. (ZEP) shares to Underweight from Hold with a price target of $9. The brokerage lowered its 2009 EPS estimate to $0.50 from $1.00.
Analyst Michael Sison downgraded the stock following disappointing first quarter of fiscal 2009 results and a sharp cut to his fiscal 2009 outlook, as recessionary conditions have taken their toll on this turnaround story with traditionally defensive end markets.
Following the company's first fundamental earnings miss post spin-off, the analyst suspects volumes will remain under pressure during the next several quarters, offsetting the benefit of internal initiatives with EPS remaining in the "red" near term. While the analyst has hoped that ZEP's internal initiatives and pricing could keep earnings largely intact in fiscal 2009 vs. fiscal 2008, it appears that this level of demand is just too sharp on the downside.
Thus, the analyst lowered his fiscal 2009 estimate to $0.50 vs. $1.07 in fiscal 2008, incorporating the fiscal first quarter of 2009 miss, weak volumes throughout the remainder of the year and ongoing raw material pressure estimated in second quarter of 2009.
While the stock has held up well over the last few months, first quarter of fiscal 2009 results suggest that ZEP is certainly not immune to deteriorating economic conditions, which the analyst suspects will take a toll on the company in the near term with no visible catalyst in sight.
Currently, ZEP is down $4.15 or 23.76% and trading at $13.32.
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