Analyst upgrades

• Deutsche Bank upgraded Sonoco Products (SON) to buy from hold after the company reported Q1 results and raised guidance. The firm upped its target for shares to $38 from $32.
• Baird upgraded Western Digital (WDC) to outperform from neutral following the solid Q3 report and guidance. The firm raised its target to $50 from $48.
• Goldman upgraded Qwest (Q) to neutral from sell. Qwest is being acquired by CenturyLink (CTL).
• Hershey (HSY) was upgraded to neutral from underweight at JPMorgan.
• Principal Financial (PFG) was upgraded to neutral from sell at UBS.
• Monster Worldwide (MWW) was upgraded to market perform from underperform at Wells Fargo.

Sterling Construction Company (NASDAQ: STRL) is engaged in the construction and reconstruction of U.S. infrastructure. Projects involve highways, roads, bridges, wastewater facilities and storm drainage systems. The firm also provides general contracting services, including excavations, paving, pipe installation and concrete placement. Sterling clients are municipal and state districts, departments and authorities.

The firm pleased investors last month, when it announced Q4 EPS of 39 cents and revenues of $88.3 million. Analysts had been expecting 32 cents and $88.6 million. Management also guided FY08 EPS to $1.43-$1.57 ($1.48 consensus) and FY08 revenues to $428-$473 million ($447.20M consensus). Sterling's President noted that the company closed the year with working capital of more than $82 million, its strongest financial position ever.

Recent developments across the U.S. have made it plain that the nation's infrastructure system needs attention. That puts the focus on firms with well-established credentials in the business. Down in Texas that would be a Houston outfit, which has operations in most of the state's major metropolitan areas.

Sterling Construction Company (NASDAQ: STRL) is engaged in the construction and reconstruction of infrastructure. Projects involve highways, roads, bridges, wastewater facilities and storm drainage systems. The firm also provides general contracting services, including excavations, paving, pipe installation and concrete placement. Sterling does about two-thirds of its business with the Texas Department of Transportation.

The firm pleased investors earlier in the month, when it announced Q2 EPS of 32 cents and revenues of $71.3 million. Analysts had been expecting 25 cents and $70.7 million. Management also guided FY07 EPS to $1.13-$1.26 ($1.18 consensus) and FY07 revenues to $285-$310 million ($293.96M consensus). Officers attributed the solid results and favorable outlook to a strong backlog. Morgan Joseph subsequently reiterated its "buy" recommendation on the issue and boosted its price target to $27. The news popped the shares out of an early August "cup" into the late August "handle" of a Cup & Handle formation. The price is now showing signs of completing the pattern with a bullish rise from the right-hand side of the "handle".

Altogether, brokers recommend the stock with three "strong buys" and one "buy". Analysts see a 19 percent growth rate, through the next year. The STRL Price to Sales ratio (0.92), Price to Book ratio (2.55), Price to Cash Flow ratio (12.14), Sales Growth rate (18.83%), EPS Growth rate (18.52%) and Return on Assets (7.77%) compare favorably with industry, sector and S&P 500 averages. Institutional investors hold about 54 percent of the outstanding shares. Over the past 52 weeks, the stock has traded between $16.51 and $25.34. A stop-loss of $18.75 looks good here.

Larry Schutts is a contributing editor for Theflyonthewall.com and the Vice-President of Stockwinners.com.