Our EquityAnalytics department is always updating price targets and ratings on companies that we cover based on new information. Our price targets and ratings are thoroughly researched and use financial analysis tools to determine stock prices. Today, we are updating the following companies from our coverage: Celanese (NYSE:CE), Columbia Sportswear (NASDAQ:COLM), Dow Chemical (NYSE:DOW), PepsiCo (NYSE:PEP), Rockwood Holding (NYSE:ROC), and Starbucks (NASDAQ:SBUX).
The chart below shows new ratings, price targets, and buy/sell ranges vs. old ones:
Celanese: Downgrade from Hold to Sell, Decrease PT From $47 to $40
Celanese's latest quarter was quite weak, and the company is one of the biggest victims of the European slowdown that we have seen. The company saw a 50% decline in operating income YoY, and we now expect it to see flat to declining levels of earnings YoY from 2011. The company's margins have dropped considerably as well in Q1. The decline in our expectations was the major factor for the company's downgrade. Additionally, the company saw a slight increase in debt levels and increasing levels of working capital which negatively affect equity value. The company expects weakness in Europe to continue for the entire year, which makes its outlook very shaky right now. We would avoid this company right now due to this murky outlook and heavy exposure to the European market. Comparatively, other chemical companies are not seeing as much weakness in Europe as well, which is another concern.
Columbia Sportswear: Maintain at Hold, Decrease PT from $53 to $48
We dropped our expectations on Columbia somewhat for the year as the company's latest quarter was weaker than expected due to hotter weather. Additionally, we saw a higher tax rate than expected for the full year, which decreased equity value. The company expects operating margin growth to be flat at around 8% for the full year, which was in line with our expectations. Additionally, capital expenditures are staying at elevated levels as the company continues to invest in new cooling technologies for its clothing. At this point, we believe the company is pretty fair valued and is going to remain flat through the summer and fall season.
Dow Chemicals: Maintain at Hold, Decrease PT from $31 to $30
Dow Chemicals reported close to expectations. We decreased our price targets slightly for the company as the company's tax rate has increased significantly YoY from around 18% to 26%. Additionally, the company saw its cash and cash equivalents drop as well. We were, however, satisfied by the company's ability to deal with the European recession and believe that it remains a solid position. The company's value, though, seems pretty fair at this point.
PepsiCo: Maintain at Hold, Maintain PT at $80
PepsiCo met our expectations for the latest quarter and made no significant changes. The company is expecting some decline in earnings for the year before a strong 2013. Depreciation was up slightly, but this was offset by a slight drop in cash and rise in debt. The company continues to see good returns to investors and expects to raise its dividend in June. We believe PepsiCo is a great pick up on any weakness to around the $60 level.
Rockwood Holdings: Maintain at Hold, Increase PT from $53 to $61
We increased our expectations for ROC significantly after another very solid quarter that outpaced our expectations. We upped expectations for 2012 based on a 16%-17% operating margin for 2012. Debt levels also dropped for the quarter, which helped equity value. The company also spoke very favorably about its lithium markets as well as believe that surface treatments will be even better in the second half of 2012. The company is growing at a great rate and is one of the best growth stocks in the chemical industry. We believe the market is pricing in a lot of this growth, and we will pick up shares on any significant weakness.
Starbucks: Maintain at Hold, Increase PT from $55 to $60
Starbucks put together another great quarter. Most of our increase in price target comes from the fact that the company commented that it still expects to grow operating income by 50-100 basis points, which was not what we expected to see based on the rise in commodity and coffee prices for Starbucks. Other announcements that upped our expectations was the fact that K-Cups are coming to stores very shortly, which we think will be another great growth place. Additionally, China growth continues to be exceptional at 20%+. We believe the company could see some slight upside if margins can remain in an up trend. At the same time, the market has priced in a lot of this growth. We would love to see more weakness to provide an opportunity to enter, but we expect a pretty flat reaction in the next couple months based on the latest quarterly results.
Disclosure: I am long PEP.