Up And Downgrades: Baidu, BMC, Green Mountain Coffee, And More

by: David Ristau

Earnings season is coming to a close, and we are starting to take a look at the companies we cover in our EquityAnalytics department. We are updating price targets and upgrades/downgrades for our 125+ companies we cover. Today, we are looking at the following companies from our coverage - Baidu (NASDAQ:BIDU), BMC Software (NASDAQ:BMC), Celanese (NYSE:CE), Green Mountain Coffee Roasters (NASDAQ:GMCR), GT Advanced Technologies (GTAT), and M/I Homes (NYSE:MHO).

The chart below shows new ratings, price targets, and buy/sell ranges versus old ones:

Unknown Object

BIDU - Maintain at Hold, Decrease PT from $167.50 to $136

We greatly reduced our PT on Baidu after their latest round of earnings as we had to increase our discount rate for the company. For the next twelve months, we are seeing limited upside as the company has started to take on debt loads to fund expansion and growth plans. The issue with this is that the company has had great growth with no debt. Adding debt to the mix can create more growth, but we believe it clouds the company's equity value. Additionally, we believe that the stock is pricing in about the best scenario right now for the company. They have increased operating margins above 50%, but we are not sure that is sustainable. Competition is coming in China that will cause a higher cost per click model for BIDU. Also, the company is not as well suited in the mobile industry where a lot of organic growth is happening.

BMC - Maintain at Buy, Decrease PT from $58.50 to $57

We continue to believe that BMC is a very solid software company that is offering a lot of growth, but only an 11 forward PE. This stock is one that we believe has value, but we also believe that the company is in a nice spot right now to continue to do well in 2012. BMC offers enterprise software similar to SAP (NYSE:SAP), but the company has continued to improve their margins and they are sitting above 25% right now. The continued adaption of the cloud network and more attention to the IT side of the business for stronger profitability is going to continue to provide BMC with opportunity. Our target is definitely aggressive, but we believe the company had a strong quarter and is looking up from here.

CE - Upgrade from Sell to Hold, Increase PT from $36.50 to $47

Celanese was upgraded to Hold after their latest quarter was fairly strong. We definitely see CE as very fairly valued at the upper $40 area, and we still do not believe this company has a lot to offer in upside. The issue for Celanese is that they are going to continue cyclical nature of chemicals. We believe that the cycle is still strong for growth, but CE is now pricing with 12 P/CF ratio. Further, the company has extremely high levels of debt and low levels of cash with which to work that debt off of their balance sheet. Until it is worked off, it will continue to damage their equity value.

GMCR - Downgrade from Buy to Hold, Increase PT from $70 to $78

We upped our PT on GMCR, but we dropped our rating as the company's valuation seems pretty fair at current levels. There is some upside, but it is not enough where we believe that GMCR will make a great buy, especially with the high-growth volatility. The company's latest quarter was strong. It was much stronger than many expected, and they seemed to have worked out many of their issues with accounting problems.

The company's new Vue model is definitely one reason we upped our overall targets for 2012 - 2015. Margins are going to slip a bit this year it looks like due to higher coffee prices, increased spending on advertising with the patent coming off for GMCR, and other issues. Yet, we like GMCR's position in the market, and we believe they have a strong brand name now. The valuations are pricing in pretty solid expectations, and any large dips we see as Buy points.

GTAT - Maintain at Buy, Decrease PT from $18.50 to $16

GT Advanced remains one of the healthiest solar-related companies out there. The company does more than just solar. It has LED lighting, solar wafers, and much more. Its diversification has allowed the company to remain profitable while others have struggled. The LED space seems to be growing a lot, and we believe that this gives the company nice upside moving forward. The solar industry seems to have also turned a corner with pricing. If LED demand is real and solar can pick up, this stock could fly as it is the healthiest in its industry. The company has no debt and a nice chunk of change. We have this company highly rated and would love to dip some money into it.

MHO - Upgrade from Hold to Buy, Increase PT from $11 to $18

M/I homes was upgraded to Buy after exceeding our expectations greatly in the latest quarter and looking solid moving forward. The company saw margins improve and had better sales than expected as well as EPS. There earnings definitely outpaced what we had priced. New orders are also on the rise. We had to increase our expectations for the full year of 2012 and 2013 given new information, and we now believe that MHO will be a stock that can outperform this year.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.