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Speculating on companies that have recently changed their ratings can be a good short-term strategy. Normally, companies will see increases in their prices after these changes. The ratings are updated daily and can therefore change daily. They can change because of a change in the analyst's estimate of the stock's fair value, a change in the analyst's assessment of a company's business risk, or a combination of any of these factors.

I assessed companies which were upgraded on September 18, and I chose the top three companies with a change on ratings.

These significant changes are:

  • Sciclone Pharmaceuticals Inc. (NASDAQ:SCLN) changed rating from hold to buy.
  • Lamar Advertising Company (NASDAQ:LAMR) changed rating from neutral to buy.
  • Western Digital Corporation (NASDAQ:WDC) changed rating from hold to buy.

These ratings are a way to qualify how the analyst views the potential for stock price appreciation. When an analyst changes his/her rating, the security's price may change. This depends on how close investors follow the analyst's recommendations. An upgrade generally tends to increase the price while a downgrade does the opposite. However, it is not only the change but the reason for the change that is important to understand.

These three stocks are valued for the change from hold to buy. It is considered a very significant change because ratings had remained static for a long time. This change has to strongly favor the valuation of the companies mentioned above as well as the vision of future investors. Normally, these changes for the better are due to lower debt and improvement of the companies' cash. These are two keys to perform a follow-up or think in a purchase of these stocks.

Here is a look at the three stocks:

1. SciClone Pharmaceuticals Inc provides therapies for the treatment of oncology, infectious diseases, cardiovascular, urological, respiratory, and central nervous system disorders in the People’s Republic of China and internationally. Its principal product is ZADAXIN, which is used for the treatment of hepatitis B and hepatitis C viruses, and certain cancers, as well as for use as a vaccine adjuvant, and as a chemotherapy adjuvant for cancer patients with weakened immune systems. ZADAXIN has approval in approximately 30 countries, which include China, the Pacific Rim, Latin America, eastern Europe, and the Middle East. The company markets and sells ZADAXIN through distribution arrangements, local importers, and distributors.

Chart Analysis


(Click to enlarge)

- The MACD marks an upward trend. RSI is in a good position.

New Rating

BWS Financial upgraded SciClone Pharmaceuticals from Hold to Buy with a price target of $8.25 after a regulatory price cut was inline with expectations.

Analyst Hamed Khorsand, analyst at BWS financial, said:

The biggest uncertainty surrounding the shares of SciClone Pharmaceuticals has been removed. The Chinese government mandated a reduction in the retail price of ZADAXIN by 18 percent ... SCLN had been indicating the cut could be approximately 15 percent. Throughout the process SCLN has been claiming they would be able to pass some of the price cut to their importers in an effort to reduce SCLN's exposure to the price adjustment.

My Rating Analysis

The reduction in the price of Zadaxine will have no impact on its quarterly Ebitda because to transmit such reduction to the suppliers. It is a good news for the company.

Fundamental Analysis

Consensus Recommendation

(SOURCE)

Financials

The company reported the second-quarter results on August 7 with the following highlights:

Revenue $40.29 Million
Net Income $10.61 Million
Cash $81.55 Million

Short Interest

Settlement Date Short Interest Avg Daily Share Volume Days To Cover
8/31/2012 6,427,216 493,448 13.025113
8/15/2012 5,916,744 813,404 7.274053
7/31/2012 4,414,463 363,626 12.140119

My Fundamental and Chart Analysis

The stock has a $7.58 price target from the Point and Figure chart. The short interest shows an increase. There have been four insider selling transactions this year. The stock is trading at a forward P/E of 7.53. The MACD marks an upward trend and for this reason, I would purchase shares with a target price of $7.58 (52 weeks high).

2. Lamar Advertising Company together with its subsidiaries, provides outdoor advertising services. Its outdoor advertising displays include billboards, such as bulletins, posters, and digital billboards; and logo signs to advertise nearby gas, food, camping, lodging, and other attractions. The company also offers transit advertising displays that provide advertising space on the exterior and interior of public transportation vehicles, transit shelters, and benches.

Chart Analysis


(Click to enlarge)

- The MACD marks a change of upward trend. The stock is in a bullish channel. RSI is in a good position.

New Rating

Goldman Sachs upgraded Lamar Advertising from Neutral to Conviction Buy with a price target of $42.00 (from $34.00), suggesting 29 percent upside. The firm sees a high probability of IRS REIT approval in Q113 given a recent IRS ruling that established a billboard REIT precedent.

Analyst at Goldman Sachs, said:

While the REIT conversion is not a certainty (due to digital displays), we find the risk-reward compelling with at least 29% upside if election is completed vs. 15% downside if it falls through.

The firm notes prior REIT conversions have outperformed
and may serve as a template. AMT/EQIX are up 75%/90% versus the S&P 500 up 30%/16%, since REIT conversion talk began

My Rating Analysis

The analysts appreciate the possible adoption of IRS. The return/risk of the operation is very attractive to the investor being about 29% if you quit the approval and 15% if it is negative.

Fundamental Analysis

Consensus Recommendation

(SOURCE)

Financials

The company reported the second-quarter financial results on August 7 with the following highlights:

Revenue $304.87 Million
Net Income $13.92 Million
Cash $98.92 Million

Short Interest

Settlement Date Short Interest Avg Daily Share Volume Days To Cover
8/31/2012 5,462,413 573,114 9.531111
8/15/2012 5,224,889 1,824,408 2.863882
7/31/2012 5,276,753 883,845 5.970224

My Fundamental and Chart Analysis

The stock has a $37 price target from the Point and Figure chart. There have been seven insider selling transactions this year. The stock is trading at a forward P/E of 3346. I would buy a small speculative position because the stock is bullish and the recent "upgrade" recommendation will help overcome the $37 target price.

3. Western Digital Corporation through its subsidiaries, engages in the development, manufacture, and sale of storage products that enable people to create, manage, experience, and preserve digital content. The company principally offers hard drives comprising 3.5-inch and 2.5-inch form factors. It offers hard drives for performance enterprise and capacity enterprise, as well as solid-state drives for embedded applications under the HGST Ultrastar, WD RE, WD XE, and WD SiliconDrive brand names; hard drives and solid-state drives for desktop and mobile PCs under the HGST Deskstar, HGST Travelstar, WD Black, WD Blue, WD Green, WD Red, and WD VelociRaptor brand names; and drives used in consumer electronics, and entertainment and navigation systems used in automobiles under the HGST Cinemaster, HGST Endurastar, WD, and HGST iVDR brand names.

Chart Analysis


(Click to enlarge)

- The MACD marks a downward trend. The stock is in a bearish channel. RSI marks an oversold.

New Rating

Standpoint Research upgraded Western Digital Corp. from Hold to Buy with a price target of $48.00.

Ronnie Moas, analyst at Standpoint Research, said:

We downgraded WDC four weeks ago as it had gotten ahead of itself and was within 6% of our $48 price target for next year. The shares have dropped 12% and underperformed the S&P-500 by 1500 bps since our downgrade. The market over-reacted to a cut in revenue guidance. In my opinion, even if WDC delivers $8.00 and not the $10.00 in EPS they are forecasting the shares are still undervalued by 20%. In a worst case scenario I see WDC earning $8.00 in 2014 and I would attach a 6X multiple to that in order to justify the $48 target for next year. Yes, there is some uncertainty regarding PC sales and volatility in this industry, but any shortfall on top of what is expected can be offset by the (same day) news regarding a new capital allocation strategy at WDC. The company announced plans to start paying a quarterly dividend of $0.25 cents a share, for an annual payout of $1.00/share, and a yield of about 2.6%. Western Digital also boosted its share repurchase authorization by $1.5 billion (or 15% of its market capitalization). The list of value traps in this sector is quite long but at 4X company EPS forecasts, this stock seems like a good risk/reward. The weak economy, shift to flash storage, and estimate cut by 10% on hard disk drives appears to be more than priced in at this time. Western Digital now sees revenue for the quarter at $3.9 billion, down from previous guidance of $4.3 billion. The company continues to see non-GAAP gross margins at ~ 30%... WDC reiterated its target $10.00 in EPS for FY 2013. The warning from WDC was in line with other comments on PC demand from INTC, HPQ and DELL, to name a few.

My Rating Analysis

The stock repurchase plan is a very attractive reason to analysts. There are many expectations of an increase in sales and to achieve new trade agreements.

Fundamental Analysis

Consensus Recommendation

(SOURCE)

Financials

The company reported the annual financial results on August 19 with the following highlights:

Revenue $12.47 Billion
Net Income $1.61 Billion
Cash $3.20 Billion

Short Interest

Settlement Date Short Interest Avg Daily Share Volume Days To Cover
8/31/2012 5,147,196 3,384,831 1.520666
8/15/2012 5,531,415 3,934,440 1.405896
7/31/2012 5,946,975 6,362,272

1.000000

My Fundamental and Chart Analysis

The stock has a $38 price target from the Point and Figure chart. Short interest has decreased in a month. The stock is trading at a forward P/E of 6.10. I would buy a small speculative position at $38 because the RSI marks an oversold and the recent "upgrade" recommendation.

*Chart data sourced from stockcharts, all other data sourced from Nasdaq.com and yahoo.com as well as the webs of the previously mentioned companies.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Source: 3 Stocks Upgraded On September 18 To Consider