Price Target And Ratings Update: Meritage, Starbucks, Westlake, And Yum Brands

 |  Includes: MTH, SBUX, WLK, YUM
by: David Ristau

Our EquityAnalytics department is always updating price targets and ratings on companies that we have coverage on based on new information. Our price targets and ratings are throughly researched and use financial analysis tools to determine stock prices. Today, we are updating the following companies from our coverage: Meritage Homes (NYSE:MTH), Starbucks (NASDAQ:SBUX), Westlake Chemical (NYSE:WLK), and Yum! Brands (NYSE:YUM).

The chart below shows new ratings, price targets, and buy/sell ranges versus old ones: (Click to enlarge)

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Meritage Homes (MTH) - Downgrade from Buy to Hold, Increase PT from $24 to $27

Meritage Homes has increased in value with the general market, and it has not been driven by company fundamentals overall. We think the company is a little bit more valuable now after its last earnings report and pick up in the general economy. The company, though, did miss our sales and earnings estimates in its latest quarter. At the same time, though, we did see closing orders increase and many of the company's metrics are moving in the right direction. We have liked what we see for the housing data out there, and we increased our estimates slightly for the coming two years, with expectations of the fiscal year being in the black in 2012 for Meritage. We would be interested in getting involved on a dip.

Starbucks (SBUX) - Maintain at Hold, Increase PT from $37.50 to $55

Starbucks is one of our favorite stocks in the dining/beverage area. We love the company's fundamentals and story. We do think that the stock is pretty fairly valued at this point. We did increase significantly our targets for the company with the announcement of the Verismo. We have seen the company do really well with margins and coffee costs as well. This PT basically says that SBUX is pricing in Verismo growth and can maintain current margins. We believe that the company is pretty fairly valued right now. While we do love this stock, we believe there are better growth opportunities for the long-term in value and growth. On any dip of significance, we will definitely be a buyer.

Westlake (WLK) - Downgrade from Hold to Sell, Increase PT from $38 to $44

Westlake Chemical has made quite the move, and we believe that it has made such a move that its a Sell candidate for us. The glaring issue for us with Westlake is that its equity value is continually marred by its excessive capital expenditures as well as working capital increases that do not seem to increase into significant growth levels for the company. While Westlake seems fairly valued with a PE at 17, the company's latest earnings were quite weak and do not seem to be priced in. The stock missed our estimates, and overall, we do not believe in Westlake Chemical right now.

Yum Brands (YUM) - Maintain at Hold, Increase PT from $60 to $63

Yum continues to look solid with growth in emerging markets helping it, and we believe the company is pretty fair valued right now at these levels and current growth/margin prospects for 2012. The company does have a really strong growth model moving forward, but it seems to have priced in a lot of that growth with a 25 PE. Additionally, some worries about China's slowdown are starting to seem more prevalent, and any slowdown here will hurt YUM a lot. With that 25 PE, most investors are willing to buy that the company is going to deliver 8-10% growth in sales through 2013. So, a slip up would be devastating. That is why we would look for a dip to around $55 to pick this one up.

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