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Insituform stock surges on upgrade

NEW YORK (AP) - Insituform Technologies Inc., a specialist in underground piping systems, saw its shares jump nearly 15 percent to a fresh 12-month high Wednesday following a brokerage upgrade predicting higher spending for sewer rehabilitation programs.

Stifel Nicholaus analyst Jeffrey L. Beach lifted the rating to "Buy" from "Hold" saying that spending on sewer and wastewater infrastructure is in a "powerful uptrend," with an estimated 10 percent growth rate in 2005. This trend, he said, should last at least through the end of the decade. His target price for the stock is $27.

The Chesterfield, Mo.-based Insituform's core business is sewer rehabilitation, which accounts for over 75 percent of sales, and holds a dominant industry position in the United States and a leading role in Europe.

Beach also cited three favorable trends in the segment: Insituform is increasing its market share as evidenced by an estimated 21 percent to 22 percent increase in its backlog; profit margins are already improving, a trend that should accelerate in 2006 and 2007; and the company is continuing to solidify its low-cost producer position through new products and processes.

Additionally, a trio of negative factors which hampered fiscal 2005 earnings should disappear. Insituform is completing the loss-creating tunneling projects, surging spot resin prices have cooled over the last 6 months, and high costs associated with internal initiatives are expected to slow in 2006.

He foresees a fourth-quarter profit in line with his 14-cent-per-share estimate though higher resin costs are likely to nip at least 5 cents per share from its income, which he believes investors will look past.

Beach raised his 2006 earnings estimate to $1.10 from $1 on a slightly better sewer rehabilitation margin. His 2007 estimate is $1.65.

Analysts, as surveyed by Thomson Financial, are looking for a profit of 15 cents for share for the fourth-quarter and 87 cents per share for fiscal 2006.

Insituform shares surged $3.07, or 14.8 percent, to $23.85 in morning trading on the Nasdaq, surpassing a prior year-high of $22.94. In recent afternoon trading, the stock was up $2.73, or 13 percent, to $23.51.