Earnings season is under way, and we are continuing to update price targets, buy/sell ratings, etc., for companies that we currently cover. Today, we have updated several companies. They include Anheuser-Busch InBev (BUD), Coca-Cola (KO), Microsoft (MSFT), Sina (SINA) and True Religion (TRLG).
The chart below shows new ratings, price targets and buy/sell ranges versus old ones:
BUD – Maintain at Hold, Increase PT From $66 to $69
Anheuser-Busch had a good quarter in which they were able to sell the same volume of alcohol for higher prices, increasing margins. We like this company as a Hold. They do not have a ton of upward price potential as sales are pretty stagnant, and the company has a nice 1.7% yield. The company did not exceed our expectations for the year, but the increase in margins, rather the ability for them to successfully increase margins, is a great sign. We increased our margin expectations for our future models, which gave us the higher price target.
KO – Maintain at Buy, Increase PT From $90.50 to $94.50
Coca-Cola is one of our favorite companies from the beverage industry. They are the complete package with consistent growth, strong margins, strong brand name, heavy economic moat and a great dividend. We saw their latest quarter as much better than the market received it. The company is seeing input costs hurting margins, but the company is seeing expanding growth. They are seeing a lot of growth in international markets, and that growth is allowing them to account for issues with margins. The company's growth exceeded our expectations, and that allowed us to improve our price target.
MSFT – Maintain at Buy, Decrease PT From $41 to $40
Microsoft had pretty much consistent earnings with what we expected. The company did miss our expectations slightly as PC sales were depressed. The company is also trying to grow sales in foreign nations that are growing, and those emerging markets have thinner margins as well. Microsoft is in a tough spot. They have not broken into the tablet market, PC sales are dropping, and the company seems to be stuck. The company, though, continues to be a great value play. They are still very undervalued at a 9 P/E ratio, and they have plenty of upside. The company has value, but until we see them breakout of this area, the company can be bought, but do not expect much until a major change occurs.
SINA - Maintain at Sell, Decrease PT From $85 to $60
Sina has and continues to be one of our least favorite plays in the Chinese Internet space. The company has gone through a very strong decline this year, and they are not even profitable this year. The company is looking cautious for 2012 ad spending. The company should get back to profitability in 2012 without writedowns. Spending increases in ads are not expected to be heavy, which is definitely a problem for this company's growth. The company needs that growth in order to really get themselves back into gear. We had to significantly cut our targets due to the fact that ad spending is not slated to grow. This is already a company that rated low on many of our scoring systems. They have low debt, but they are not strong in profitability, management and growth at the moment. We prefer Baidu (BIDU) or Sohu (SOHU) over SINA.
TRLG - Downgrade from Hold to Sell, Increase PT from $25.50 to $30
True Religion is a smaller apparel manufacturing company that makes designer jeans, shirts and clothing that has come on the scene in the past couple years. We believe the company sits a bit overvalued currently, and it does not have a ton of potential moving forward for a lot of price increase. Despite the fact that the company is growing, we see that a best case scenario for the company is that they can grow operating income by 60-70% over the next five years. The company, however, is pricing in fairly significant growth that we do not believe is achievable at this time. We did raise our price target as we moved down our discount rate and upped our targets even further, but given the cyclicality of apparel and trends in fashions ... long-term investing in something that is hot today is never a wise choice.