By Larry Gellar
Here we have 5 of the latest analyst downgrades. Fifth Third, Phillip Morris, Amazon.com, and Carnival are large companies with important issues they'll need to work through. Meanwhile, Texas Roadhouse is a smaller restaurant chain that could suffer in the near future. Let's see what's been happening with these 5 stocks:
Fifth Third Bancorp (NASDAQ:FITB)
Analyst action: Robert W. Baird downgraded Fifth Third from Outperform to Neutral due to valuation. Price target is still $15.
Recent headlines: Despite the downgrade, Fifth Third still has a lot of factors working in its favor. The latest earnings report beat analyst expectations handily and was also strong compared to the company's previous performance. Revenue from interest and fees has grown steadily for Fifth Third, and delinquency rates for the industry overall are improving. While Fifth Third will still have to deal with a challenging regulatory environment and a lawsuit related to Visa (NYSE:V), the company has the capital needed to take on these issues.
Competitors: Fifth Third offers average price to earnings, price/earnings to growth, and price to sales ratios compared to other banks like Bank of America (NYSE:BAC), PNC Financial Services (NYSE:PNC), and U.S. Bancorp (NYSE:USB).
Cash flows: $159 million flowed out of Fifth Third during 2010, although $189 million flowed in during the first 3 quarters of 2011. A mix of new debt and improved operating cash flows has brought money in.
Other interesting statistics: Fifth Third has an operating margin of 33.56% and a quarterly revenue growth of 39.80% year over year.
Philip Morris International Inc. (NYSE:PM)
Analyst action: Goldman Sachs downgraded Philip Morris from Buy to Neutral. The firm has an $80 price target on the stock and noted that short-term prospects aren't stellar.
Recent headlines: Philip Morris is being affected by a number of interesting price trends right now. In some of the countries it works in, Philip Morris is increasing prices to counteract lower quantity demanded for cigarettes. On the other hand, new smokeless products could help the company to regain customers since many consumers are more comfortable with those items. Various changes in the regulatory environment could also affect this company's profits going forward. Specifically, laxer governments are providing an opportunity for cigarette companies to undercut each other to try to gain market share.
Competitors: Compared to British American Tobacco (NYSEMKT:BTI) and Imperial Tobacco (ITYBY.PK), Philip Morris has a rather higher price to sales ratio of 4.41. The company's superior (65.58% gross and 43.42% operating) are likely playing a significant role in that.
Cash flows: $163 million flowed into Philip Morris during 2010, and $1.688 billion flowed in during the first 3 quarters of 2011. The company has done a fine job of improving operating cash flows.
Other interesting statistics: This stock has a dividend yield of 3.90%.
Amazon.com, Inc. (NASDAQ:AMZN)
Analyst action: Benchmark reduced both earnings estimates and price target for Amazon.com due to deteriorating margins. The price target is now $210, although the firm still has a Buy rating on the stock.
Recent headlines: The big story for Amazon is that its subsidiary Zappos.com was hacked to the tune of 24 million users. That has users like Theresa Stevens up in arms, and lawsuits have already been filed. While the hackers weren't able to get users' most precious information such as complete credit card numbers, some valuable information was taken, regardless. For instance, the lawsuit argues that users who had their e-mail addresses stolen will be more likely to receive e-mails from fake websites and other fraudulent activities. Users will also need to spend money to monitor their credit, and they could suffer from problems such as privacy loss and general distress. In other news, Amazon's LoveFilm subsidiary has just made a lucrative deal with Disney (NYSE:DIS) UK. Here's what LoveFilm's Simon Calver had to say: "Today's deal with Disney brings them access to some of the best American TV content ever produced. LoveFilm's unique combination of world-class movies and TV shows ensures that LoveFilm is the first and only port of call for those who want subscription entertainment on demand." In my opinion, Amazon is in the early innings of growth in this area and is already giving Netfix (NASDAQ:NFLX) a run for its money.
Carnival Corporation (NYSE:CCL)
Analyst action: Both Goldman Sachs and UBS reduced their earnings estimates for Carnival. Goldman Sachs also lowered its price target for the stock, but both banks still have a Buy rating on it.
Recent headlines: Investors who think the Amazon situation is bad certainly have heard about Carnival's troubles yet. The cruise line had its Costa Concordia capsize on Friday with approximately 4500 passengers aboard. With 11 people confirmed dead, it's not hard to see why Carnival has seen its stock plummet. While successful lawsuits against the company are unlikely due to its niftily worded contract, business will definitely suffer. After all, worried travelers will simply book vacations that don't involve seafaring. Another issue is that apparently the ship's captain was quite negligent in his responsibilities once abandon ship was declared. Needless to say, it's pretty hard to promote good customer service when passengers aren't being properly evacuated of a sinking ship.
Competitors: Despite the sinking stock price, Carnival's price to earnings, price/earnings to growth, and price to sales ratios are still significantly higher than those for Royal Caribbean Cruises (NYSE:RCL). Margins between the two companies are nearly identical, although Carnival's quarterly revenue growth is actually -1.50% year over year.
Texas Roadhouse, Inc. (NASDAQ:TXRH)
Analyst action: Morgan Stanley downgraded Texas Roadhouse from Overweight to Equal-weight due to expected poor performance in the short term.
Recent headlines: According to a new interview from CEO Kent Taylor, opening the company's first international restaurant wasn't without its setbacks. For instance, Taylor hoped the restaurant, located in Dubai, would be more like its American counterparts. He said, "A lot of times when you go international, whatever their view of what you should be over there for their people - and I had to stand my ground - once you open up and they see how well your concept works there, those conversations all get forgotten." Investors considering making a move on TXRH should also check out this article from Fool.com, which talks about Texas Roadhouse's cash conversion cycle.
Competitors: Compared to Brinker (NYSE:EAT) and Darden (NYSE:DRI), Texas Roadhouse has the highest price to earnings, price/earnings to growth, and price to sales ratios. In fact, investors have been willing to pay a premium for this company's strong margins (34.49% gross and 8.82% operating).
Cash flows: $35.36 million flowed in Texas Roadhouse during 2010, but $26.54 million flowed out during the first 3 quarters of 2011. That's mostly been due to stock repurchases, however.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.