Analysts have been sending out their research reports to their clients again this week. The following is a review of the most important downgrades for the week of April 30 till 4 May.
Deutsche Bank has lowered its advice for Mednax (MD) from buy to hold and lowered its price target to $73. Shares in the provider of physician services fell over 5% on the week to their lowest levels in 2012 around $66 per share. The bank is worried that the slower pace of acquisition deals coupled with a change in the margin profile will lead to less of an earnings multiple expansion than previously thought. Shares came under pressure this week as Mednax reported quarterly profits of $0.98 which missed analyst consensus of $1.00 per share.
Barclays Capital lowered its advice for Expedia (EXPE) from equal weight to underweight with a price target of $34 per share. Despite the downgrade by Barclays, shares in the online travel company gained 1.7% over the week ending at $40 per share. Shares rose more than 20% the week before as the company issued a very strong earnings report and raised its full year guidance. Barclays beliefs that the recent move, which drove shares to all time highs, is a sign that the market is too optimistic about the company's ability to drive high-quality growth.
Deutsche Bank lowered its advice for VeriFone (PAY) from hold to sell with a $40 price target. Deutsche Bank questioned the company's organic growth projections. The bank claims that VeriFone has overstated organic revenue growth as most of the revenue increase came from selling own products to customers from the acquired Hypercom business. The company disputed the comments from Deutsche Bank and sticked with its 10-15% organic growth target for the year. Investors got scared off by the warning and send shares 14% lower to close at $46.90, still 15% above the target price.
Procter & Gamble
Oppenheimer lowered its recommendation for Procter & Gamble (PG) from outperform to perform. The bank has revised its recommendation after the company reported some mixed results for the latest quarter, accompanied by a disappointing near term outlook. Oppenheimer says the company has been "disproportionately impacted by sluggish market growth" and the company will most likely to remain "growth-challenged". The latest pass through of commodity prices has lead to lower revenue growth as consumers stayed away in some product groups, after recent price hikes.
Goldman Sachs initiated Supervalu (SVU) with a sell recommendation accompanied by a $5 price target. Shares of the grocery company fell almost 10% on the week to close at $5.54 on Friday after Goldman cited that the company may encounter more trouble than the financial community currently realizes. Cyclical headwinds and excess financial leverage will continue to pressure results, which leaves little for shareholders in the intermediate future. Continued market share losses will most likely imply that the company will miss on its next earnings release. Shares in the grocery company have fallen almost 90% since the all time high set in 2007 to trade at 30 year lows.
As is well known, analysts research reports tend to be heavily biased towards the buy side. This makes any sell side research much more interesting as banks do not have to please their corporate customers in order to win investment banking deals. Unfortunately some of the recommendations come after the fact (often after an earnings release) but this week we saw two interesting calls. First of all is the very unusual call of Deutsche Bank regarding VeriFone Systems on the back of the "organic growth" debate. Second is the sell recommendation initiated by Goldman Sachs for Supervalu which sends shares lower on the week. It will be interesting to keep a close eye on the results of these calls in the short term.