Review Of Analyst Downgrades This Week - Part XII

by: The Value Investor

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 June 25 to June 29.

AutoNation Inc (NYSE:AN)

Deutsche Bank lowered its advice for AutoNation from hold to sell with a $24 price target. Analysts see some 32% downside potential for shares of the automotive retailer. For the full year of 2013, analysts expect annual car sales of 14.2 million in the US—equivalent to the estimated annual units sold for 2012. Lack of growth in 2013 could present further downside risks to earnings estimates. Margin compression is likely as inter-dealer competition may intensify in a no-growth environment. Shares in AutoNation hardly moved during the week, now trading with losses of 4% year to date. So far in 2012, shares have traded within a tight $33-$37 trading range.

Caesars Entertainment (NASDAQ:CZR)

Bank of America/Merrill Lynch lowered its advice for Caesars from hold to underperform with a $10 price target. Analysts see some 11% downside potential for the casino holding company. "Execution challenges are rising following recent management departures, slower growth in regional growth markets and a dilutive asset sale". Shares, which peaked around $16 per share in April, have fallen on the back of lower growth expectations; this could hit the entertainment industry hard. Shares in Caesars fell 5% this week, marking year to date losses to 26%.

Hasbro, Inc. (NASDAQ:HAS)

Citigroup lowered its advice from neutral to sell for Hasbro with a $31 price target. Shares in the producer of children's leisure products have some 9% downside potential according to analysts, as it will be difficult for Hasbro to achieve its sales growth target for 2012, given the weakness in the company's Games business. Analysts see disappointing toys sales related to movies including Avengers, Battleship, and Spiderman. Shares in Hasbro have returned some 7% year to date, but with a core business which is underperforming, analysts see room towards the downside.

Cognizant Technology Solutions Corporation (NASDAQ:CTSH)

Goldman Sachs lowered its advice for Cognizant from hold to sell. Analysts see some 13% downside potential for the provider of information technology, consulting, and businesses process outsourcing services. The high exposure to the financial sector, which comprises 41% of the company's revenues, could prove a drag on future growth. Furthermore, the high valuation and lower growth prospects weigh on the potential for the stock. Analysts point out that the long-term prospects for the firm remain intact, while they expect short-term negative returns. Shares of Cognizant have fallen from peaks of $77 in March to $60 per share today, after the company issued a disappointing outlook for the coming quarter. So far in 2012, shares have fallen 7%.

Xylem, Inc. (NYSE:XYL)

Goldman Sachs lowered its advice for Xylem from neutral to sell. Analysts set a $24 price target for the provider of equipment and services for water and wastewater applications. Shares have some 5% downside potential as "Xylem faces prolonged weakness in Europe and municipal water marks, which combined make up for 65% of total revenues. Furthermore the possibilities for merger & acquisition activity have decreased and the balance sheet options are below average". Shares rose more than 5% this week, trading flat for the year.

Dolby Laboratories, Inc. (NYSE:DLB)

Goldman Sachs initiated its advice for Dolby with a sell recommendation and a $39 price target. Shares in the developer of technologies for the entertainment industry have some downside potential according to analysts. "We like Dolby's brand recognition, broad ecosystem and international growth opportunities. However, we expect two headwinds to weigh on the near-term results: ongoing secular trends moving to new form factors, and reliance on consumer discretionary spending amidst high levels of unemployment." Shares in Dolby returned over 35% so far in 2012 after the company issued a strong guidance for the full year of 2012.

Nike Inc. (NYSE:NKE)

R.W. Baird lowered its advice for Nike from outperform to neutral with a $95 price target. Shares in Nike fell 9% on Friday after the company reported disappointing fourth quarter earnings. The company reported fourth quarter earnings of $1.17 per share, far below expectations around $1.37 per share. Slower growth in China and a strong dollar are impacting Nike's business and its bottom line. Shares in Nike fell almost 12% over the last week and have fallen almost 25% after peaking at $115 per share in May.


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).

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