Review Of Analyst Upgrades Last Week - Part XIII

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Includes: CHSI, CTRX, HFC, KKR, PSX, PXD, SBH, TIF
by: The Value Investor

Analysts have been sending out their research reports to their clients again. The following is a review of the most important upgrades for the week of July 2nd to July 6th.

Pioneer Natural Resources

Barclays Capital raised its advice for Pioneer Natural Resources (PXD) from equal weight to overweight with a $104 price target. Analysts see some 22% upside potential for the independent oil and natural gas company with assets in the US and South Africa. Shares offer some value after they have retreated from $115 in April to $86 at the moment. This is despite the fact that analysts have lowered their full year 2012 earnings forecast from $5.30 to $3.30 per share. Year to date shares have lost some 4% amidst a correction in oil and gas prices.

Sally Beauty Holdings

Bank of America/Merrill Lynch raised its advice for Sally Beauty Holdings (SBH) from neutral to buy with a $32 price target. Analysts see almost 20% upside for the specialty retailer and distributor of professional beauty supplies. "Sally Beauty Holdings is a rare example of a domestic growth story with defensive characteristics, i.e. recession resistant with minimal FX risk." Furthermore analyst see the possibility of buybacks and a possible dividend, given the company's 100% 3 year free cash flow conversion rate. Shares of Sally Beauty Holdings have already returned 28% so far in 2012, trading around all time highs of $27 per share.

SXC Health Solutions

Goldman Sachs initiated SXC Health Solutions (SXCI) with a buy rating and a $120 price target. Analysts see 25% upside potential for the pharmacy benefit manager after its merged with Catalysts Health Solutions (CHSI), creating the nation's fourth largest pharmacy benefit manager. Analysts of Goldman Sachs note that "the additional scale of the firm should allow SXC to become more competitive. While there are clear benefits from this deal, the more important issue is the appropriate valuation given the larger base to grow off and the impacts on comparables versus the top pharmacy benefit manager operations." Furthermore management has clearly not ruled out additional merger and acquisition activity, which could provide a boost to the valuation. Shares of SXC have already returned 70% in 2012.

KKR & Co

Oppenheimer raised its advice for KKR & Co (KKR) from perform to outperform with a $18 price target. Analysts see some 35% upside potential for the investment management company. Analysts of Oppenheimer note that "the company has recently made great headway in monetizing investments in its large and critically important 2006 Fund. The $17.6 billion fund represents 44% of KKR's invested private equity capital, but has not yet generated significant cash carry for distributions." Shares of KKR & Co have traded within a $11-$15 trading range for most of 2012, closing Friday at $13.23.

Phillips 66

Deutsche Bank raised its advice for Phillips 66 (PSX) from hold to buy with a $42 price target. Shares in Phillips 66, which owns the former downstream activities from Conoco Phillips, have some 25% upside potential according to analysts. "Phillips 66 is the premium unconventional oil play according to analysts which also labeled HollyFrontier (HFC) as a top pick. Shares of Phillips 66 got their separate listing early in May of this year and have traded within a trading range of $30-$34. Shares ended the week near the upper side of the trading range, closing at $33.37

Tiffany & Co

Canaccord raised its advice for Tiffany & Co (TIF) from hold to buy with a $63 price target. Analysts see some 18% upside potential for the jeweler company. "The stock's recent pullback has opened a window of opportunity into one of the best brands in luxury with significant global expansion opportunities", according to Canaccord's analysts. Shares have lost almost 30% of their value after peaking at $73 in March of this year as investors fear the impact of slower economic growth on the business prospects of the firm. In May of 2012 Tiffany's was forced to lower its full year 2012 earnings outlook to $3.70-$3.80 per share. This warning triggered another sell-off in Tiffany's shares which have lost 20% year to date.

Conclusion

Stock markets ended the week with modest gains of around 1.5% on the week amidst hopes that the situation in Europe is stabilizing. As such, brokers have sent out favorable research reports again to clients. Many of the recommendations were made after the release of earnings reports, and often come after a large move to the upside. However, on the day of the announcement, analyst recommendations can still move the stock price significantly.

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