By Larry Gellar
Here are 5 of the most recent analyst upgrades. Urban Outfitters (URBN) and Starbucks (SBUX) are having success with their stores despite headwinds. Meanwhile, BP, EMC, and T. Rowe Price (TROW) are making adjustments to improve their business. Let's see what's been happening with these 5 stocks:
Analyst action: Jefferies upgraded BP from Hold to Buy due to good news in BP's legal battles.
Recent headlines: Rumors abound that BP might extend a helping hand to Petroplus. BP relies on that company for refining, but financing issues have forced it to shut down some facilities for the time being. Additionally, cleanup related to BP's infamous oil spill appears to be winding down. Here's one remark from CEO Robert Dudley: "Every crisis is different, virtually every one. In this case, what we have done is learned and are putting in place new lessons around safety." Another piece of news for BP is a partnership with Sempra Energy (SRE) to build wind farms.
Competitors: BP has lower price-to-earnings and price-to-sales ratios than Chevron (CVX) and Exxon Mobil (XOM), but it has the highest price/earnings to growth ratio. Essentially, that translates to low expected growth for BP. BP margins have also been low - those numbers are 14.98% gross and 7.80% operating.
Cash flows: BP had $10.217 billion in cash come in during 2010, mostly due to asset sales. $559 million has flowed out during the first 3 quarters of 2011, mostly due to capital expenditures.
Other interesting statistics: BP's quarterly revenue growth is 35.10% year over year.
Analyst action: JP Morgan upgraded EMC from Neutral to Overweight due to improving market share. Price target is $28.
Recent headlines: Not only does JP Morgan like EMC right now, but also this article from Forbes is pretty bullish. EMC has terrific market share in the business for storage software, and it could gain even more as it continues to prove that it's the leader in this sector. Trends within the industry also stand to benefit EMC. With technology changing so quickly these days, many companies are having to get new software faster than ever before. That benefits EMC's software business as well as its hardware division to a certain extent. While EMC could be hurt by turbulence in the hard-drive storage market, this should be a short-term phenomenon.
Competitors: Compared with Hewlett-Packard (HPQ) and IBM, EMC has much higher price-to-earnings and price-to-sales ratios. Its price/earnings-to-growth ratio is the lowest, though, which is a sign of high expected growth. EMC also boasts terrific margins compared with its peers - those numbers are 60.44% gross and 17.73% operating.
Cash flows: EMC had $2.183 billion flow out during 2010, and $993.53 million flow out during the first 3 quarters of 2011.
Other interesting statistics: EMC's quarterly revenue growth is 18.20% year over year.
Analyst action: UBS raised both earnings estimates and the price target for Starbucks due to success with the single-serve business. UBS has a buy rating on Starbucks and price target is now $52.
Recent headlines: An article from The New York Times has drawn attention to Starbucks' latest price increases. With a tall cup of coffee now costing $2.01 (after tax) in Manhattan, many customers are showing their displeasure. Used to simply handing the barista $2 and then putting the change in the tip jar, customers are now having to pull out that extra penny. In fact, some baristas are taking the penny out of their tip jar to help customers out. While these actions may seem petty, it does seem a bit unintelligent on Starbucks part. Here's what Starbucks Jim Olson had to say about the change: "If you bought a coffee and, say, a bagel, you might not notice the price so much." Olson also noted that the only people who would be bothered by this are the supposedly small proportion who pay with cash.
Competitors: This petty penny problem could cause Starbucks harm if customers switch to Dunkin' Brands (DNKN) or McDonald's (MCD). Those stocks have higher price/earnings-to-growth and price-to-sales ratios, but they also have much better operating margins.
Cash flows: Starbucks had $15.9 million flow out during fiscal year 2011, although much of that was caused by stock repurchases and dividends.
T. Rowe Price (TROW)
Analyst action: Jefferies raised its price target for T. Rowe Price from $58 to $64 after meeting with the company's management. Additionally, UBS is rating T. Rowe Price at Neutral with a price target of $61.
Recent performance: T. Rowe Price's stock fell below $50 in November, but now shares are near $60.
Recent headlines: Citigroup recently noted that T. Rowe Price's funds did pretty well in 2011. T. Rowe Price's funds had returns that were 1.7 percentage points higher than its peers, and equity funds were able to outperform by 2.1 percentage points. The Growth Stock Fund and Mid-Cap Growth Fund were two particularly strong performers. Investors should also note that T. Rowe Price passed 9 out of the 10 measures used by Fool.com to check for a perfect stock. Revenue growth was the only concern, and T. Rowe Price did very well on margins and balance sheet checks.
Competitors: Companies with similar funds to T. Rowe Price include American Century Companies, FMR, and The Vanguard Group.
Cash flows: T. Rowe Price had $69.8 million flow in during 2010 and $188.3 million flow in during the first 3 quarters of 2011. Operating cash flows have been especially good.
Other interesting statistics: T. Rowe Price stock offers a dividend yield of 2.10%.
Analyst action: Wedbush upgraded Urban Outfitters from Underperform to Neutral with a price target of $25.
Recent headlines: Urban Outfitters has had a bit of a management shakeup lately. CEO Glen Senk resigned to take the reins at jewelry retailer David Yurman, Inc. and was replaced by Richard Hayne. Considering Mr. Hayne is one of the company's co-founders and was previously serving as chairman and president, Hayne was the obvious choice. Urban Outfitters wasn't having too much trouble under Senk since revenue increased nicely for November and December, but there were a couple of other issues. Urban Outfitters has been struggling to keep market share and has at times resorted to significant discounts to get products off the shelf.
Competitors: Similar apparel retailers to Urban Outfitters include Abercrombie & Fitch (ANF) and Gap (GPS). Urban Outfitters has a pretty high price-to-sales ratio compared with those stocks because investors have been willing to pay for a premium for the company's superior operating margin (14.12%).
Cash flows: Urban Outfitters had $181.23 million flow in during fiscal year 2011 and $256.89 million flow out during the three quarters after that. Operating cash flows have been a bit down recently.