Price Targets And Ratings Updates For 5 Companies

by: David Ristau

With earnings season underway, we are starting to analyze some of the latest results from companies and update price targets as well as ratings on companies that we have coverage on. We cover over 125-plus companies. Each company is given a price target, rating, as well as Profitability, Financial Health, Management, Value, and Growth rating. Today, we are looking at Cree (NASDAQ:CREE), F5 Networks (NASDAQ:FFIV), Johnson Controls (NYSE:JCI), Microsoft (NASDAQ:MSFT) and Constellation Brands (NYSE:STZ).

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CREE - Downgrade to Sell, Decrease PT from $28.50 to $23

CREE just continues to disappoint us. Over the past two years, we have brought our price target down from $45 to $23 now. The company had another weak quarter. The company missed on revenue, missed on EPS, and saw margins drop as well. The company is in an industry that we believe is high growth capable, and the company is still seeing significant sale increases. Margins, though, have continued to drop and have not shown any signs of improving. The company cut targets for next quarter as well. The issue we see is that while pricing may stabilize in the near-term, the company has shown no signs of margin improvement. We would rather be on the sidelines to wait and see if this happens in the first half of 2012 rather than hoping it happens. A supposed China subsidy for LED will help, but pricing has been diminishing despite losses for a lot of Cree's competitors. At some point, they have to stabilize, but we thought they would much earlier than we thought they would.

FFIV - Maintain at Sell, Increase PT from $80.50 to $89

F5 Networks continues to be a Sell for us as the company - despite its great growth - continues to maintain a very significant valuation that we continue to believe is not continually obtainable. After the latest earnings, the company still operates a 40 PE and 23 forward PE. The company had an impressive quarter that did outperform our expectations, but we did not see the earnings nearly as impressive as the market did. The company's forecasting met expectations on earnings and was slightly higher on sales. The company saw a higher PT from us as margins improved, but we still worry about growing competition, overvaluation and the fact that we believe that a lot of the company's upside is already priced in at this point. Things look solid right now, but we believe that value is too high for them. Continued margin improvement would definitely make us consider upping our price target.

JCI - Maintain at Hold, Decrease PT from $39 to $33

Johnson Controls gets a slash in our PT after the last earnings started to show some ill effects from the disaster in Europe. Margins were hurt and profits look to be weakening, which caused us to slash our price targets. We believe that the company is still a very solid fundamental auto parts maker, and any major dips provide a buying point. The company cut its forecasting, and we had to slash our targets for 2012 due to Europe, HVAC demand and other issues. We would see price targets increasing, though, and a lot of upside in the company if Europe does rebound.

MSFT - Maintain at Buy, Increase PT from $40 to $42

Microsoft continues to remain a Buy for us. We all know that PC sales have dipped. MSFT has battled that with other lines, however. Office sales remain strong. We are a big fan of the entertainment side of Microsoft with the Xbox business and believe it is a growth place for the company. Further, we are a fan of the Skype transaction and believe that there is potential there as well. While we are not sure PC sales do improve in the first half of 2012, we believe that a lot of this issue has been priced into MSFT. Windows 8 for tablets is set to come out in the second half of the year, which allows the company to be able to make some move into tablet growth as well. Finally, we are a fan of the great dividend in the stock, and we believe that the company's value is very cheap at a 9 forward PE.

STZ - Maintain at Buy, Maintain PT at $28

Disclosure: I am long MSFT.

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