By Larry Gellar
Here we have 5 of the latest analyst downgrades. While Google (NASDAQ:GOOG) and Electronic Arts (NASDAQ:EA) are two technology companies with unique challenges, DirecTV (DTV), Kroger (NYSE:KR), and Citigroup (NYSE:C) are facing macroeconomic headwinds. Let's see what's been happening with these 5 stocks:
Analyst action: UBS downgraded DirecTV from Buy to Neutral. The bank now has a price target of $46 on the stock due to weakening subscriber growth.
Recent headlines: DirecTV will begin offering BabyFirstTV to all of its customers. Here's what DirecTV's Reagan Feeney had to say: "We're delighted to have BabyFirstTV, the trusted TV network for families of young children with a 97 percent satisfaction rate, as part of our DIRECTV programming lineup. As one of the world's leading television providers, we are continually looking at new ways to enhance the family viewing experience and create more value for loyal customers." DirecTV is also using some interesting sponsorships to further promote itself. For instance, the Celebrity Beach Bowl, which takes place in Indianapolis during Super Bowl weekend, will bear DirecTV's name. Other news for DirecTV has centered on the recently introduced Next Generation Television Marketplace Act, which figures to benefit DirecTV if passed.
Cash flows: $1.103 billion flowed out of DirecTV during 2010, and $205 million flowed out during the first 3 quarters of 2011. Aggressive stock repurchases have played a large role in that.
Analyst action: Wells Fargo downgraded Google from Outperform to Market Perform due to future obstacles to growth.
Recent headlines: AllThingsD is reporting that Google's VP of Commerce, Stephanie Tilenius, will be taking on a new role. In the past, Ms. Tilenius has played a crucial role in unveiling the new Google Wallet, which could drastically change how consumers make payments. Here's what Google spokesman Nate Tyle said: "Stephanie is moving to a new role where she will oversee global strategy and work with key partners to expand our commerce efforts internationally." Meanwhile, on the phone side of the company's business, Google is continuing to gain market share with its Android operating system. The latest Nielsen survey found that Android has a 46.3% share of the smartphone market, and a survey from comScore puts the number at 46.9%.
Competitors: Compared to AOL (NYSE:AOL) and Yahoo (NASDAQ:YHOO), Google has a high price to sales ratio but a low price/earnings to growth ratio. In fact, not only does Google have high projected growth, but it also boasts terrific margins. Those numbers are 66.24% gross and 32.76% operating.
Other interesting statistics: Google has a quarterly revenue growth of 33.40% year over year.
The Kroger Co.
Analyst action: BMO Capital downgraded Kroger from Outperform to Market Perform due to valuation.
Recent headlines: DiversityBusiness.com has named Kroger a top 50 organization for multicultural business opportunities. Here's what Kroger's Reuben Shaffer had to say: "Kroger is honored to be selected as one of the top 50 companies for creating multicultural business opportunities. We are inspired daily to foster a diverse, respectful and inclusive business by the nearly 1,000 minority and women-owned businesses we work with." The consumer side of things is also looking good for Kroger. A survey in Dayton found that a large percentage of grocery shoppers prefer Kroger to other places where they could buy their food. Another piece of news for Kroger has been in regard to its pension plans. The company will merge four of its pension funds in addition to borrowing a significant portion of money upfront in order to reduce uncertainty.
Competitors: Compared to Costco (NASDAQ:COST) and Wal-Mart (NYSE:WMT), Kroger offers relatively low price to earnings, price/earnings to growth, and price to sales ratios. Costco and Wal-Mart offer better operating margins, however - those numbers are 2.69% and 5.94% respectively.
Cash flows: $401 million flowed into Kroger during fiscal year 2011, but $609 million flowed out in the 3 quarters after that. That reversal has been mostly due to increased stock repurchases though.
Other interesting statistics: Kroger has a fairly low beta (0.54).
Electronic Arts Inc.
Analyst action: Goldman Sachs reduced both earnings estimates and price target for Electronic Arts. The new price target is $22 due to higher expenses.
Recent headlines: Electronic Arts is starting an exciting partnership with musical artist Katy Perry. Here's what Electronic Arts' Steve Schnur had to say: "We couldn't be more excited to work with Katy and bring her distinctive talents, style and personality to the franchise's global fan base. No performer could better represent the humor and fun of The Sims brand." While getting celebrities like Katy Perry on board has certainly been important for EA, bringing back CEO John Riccitiello may have been Electronic Arts' smartest choice of all. As discussed here, Electronic Arts has adjusted to the new landscape of gaming quite nicely, in part due to Mr. Riccitiello's vision.
Cash flows: $306 million flowed into Electronic Arts during fiscal year 2011, although $649 million flowed out in the 2 quarters after that. In fact, operating cash flows have taken a significant hit.
Other interesting statistics: Electronic Arts has a quarterly revenue growth of 13.30% year over year.
Analyst action: Both Bernstein and UBS reduced their earnings estimates for Citigroup. The major issue here is that Citigroup's revenue from capital markets doesn't appear to be improving anytime soon. Regardless, Bernstein and UBS have ratings of Buy or Buy-equivalent on the stock.
Recent headlines: Citigroup just released its quarterly earnings report, and both revenues and earnings were below expectations. Not only that, but also December was "very, very weak" according to CFO John Gerspach. Additionally, the capital markets group is racking up some unfortunate expenses. Citigroup is being fined $725,000 for failure to disclose in incidents that occurred between 2007 and 2010. Other parts of Citigroup are having more success, however. For example, the bank's credit card success is enjoying both lower delinquency rates and lower late payments.
Competitors: Compared to HSBC (HBC) and JPMorgan Chase (NYSE:JPM), Citigroup has the lowest price to earnings, price/earnings to growth, and price to sales ratios, but, on a stability basis, we recently noted two better bets in banking.
Cash flows: $2.5 billion flowed into Citigroup during 2010, and $978 million flowed in during the first 3 quarters of 2011. In fact, the bank has been selling assets left and right in order to meet new capital requirements.
Other interesting statistics: Citigroup has a very high beta (3.02).
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.