RRST Valuation Will Come To Earth As A Weak Dollar Continues To Pressure Gross Margins

RRST is a global provider of satellite and media outsourcing services to radio and TV channel operators. Prior to launching Sharp Trader I had a BUY rating on RRST however I am now cutting my estimates, price target and reducing my rating to Nuetral (from BUY) as we now think the global media market will follow the US into an ad recession. RRST is a well run company with a bright longterm outlook, in our view, however we thnk near term weakness in the global media market will pressure EPS in 2008.

_Thus we are cutting our price target to $11 from $28 as we reduce our EPS estimate for 2008 to $0.73 from $0.89. Likewise we are cutting our 2009 estimate to $0.95 from $1.25

_We apply a 15x multiple to our $0.73 2008 EPS estimate to arrive are our target.

_We think RRST will face gross margin pressure as the combination of a weak US dollar relative to the New Israeli Shekel combined with rising satellite linkage prices offsets 28% revenue growth we expect.

_We also predict media growth outside of the US will slow following the summer Olympics as high fuel prices limit disposable income in emerging markets in Africa and the Asia.

_Since much of RRST's growth is attributed to emerging markets we think RRST's revenue growth could slow as these markets cool.

_In the long term we think RRST's fundamentals are intact but we would avoid taking a position in RRST today as its shares are illiquid and we see limited EPS growth in the near term.