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The writer is a long term value investor (over 10 years experience) seeking both value in long and short ideas. Besides stock positions, the writer likes to work with options to enhance the risk/return profile of the ideas. Disclaimer: This article provides opinions and information, but does not... More
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  • Review Of Analyst Downgrades Last Week - Part XIV 0 comments
    Jul 16, 2012 9:57 PM | about stocks: AMAT, AMD, DAL, EV, FDO, LXK, MA, SAM, V

    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 July 9th to July 13nd.

    Lexmark International

    Barclays lowered its advice for Lexmark International (LXK) from equal weight to underweight with a $21 price target. Analysts at Barclays cite as main reasons behind the second downgrade in a two day time span: "Lexmark's pre-announcement was even below our recently lowered estimates in our downgrade note yesterday... citing weaker than expected demand in Europe and negative currency headwinds as reasons for the lower guidance." Analysts cut their full year 2012 earnings per share forecast from $4.16 to $3.53, while cutting their full year revenues estimate from $3.89 billion to $3.73 billion. Other major US technology companies with sizable activities in Europe including Advanced Micro Devices (AMD) and Applied Materials (AMAT) already warned for disappointing results as a consequence of bad performance of their European activities. Shares of Lexmark had a terrible week losing a quarter of their value in just five days after the company warned for a difficult 2012. Year to date shares have lost almost 40%.

    Delta Air Lines

    Goldman Sachs initiated its advice for Delta Air Lines (DAL) as a new sell accompanied by a $9.30 price target. Analysts at Goldman see some 15% downside potential for commercial air plane operator. Goldman's analysts have issued a second quarter earnings guidance below consensus estimate as analysts expect "weaker-than-expected traffic growth and a deceleration in yield gains." Additionally, analysts are worried about the acquisition of the Trainer Refinery, given the execution risks related to operating an oil refinery and the industry's cyclicality. Shares of Delta Air Lines ended the week largely unchanged, marking year to date gains of 33% on the back of falling oil prices.

    Boston Beer

    UBS lowered its advice for Boston Beer (SAM) from neutral to sell with a $103 price target. Analysts at the Suisse based bank see some 10% downside potential for the craft brewer known from its Samuel Adams brand. Analysts at UBS cite that "70 percent of Boston Beer's recent growth has come from its Twisted Tea line and seasonal craft beer program. Slowing distribution gains for Twisted Tea and the lack of new seasonal offerings in the Samuel Adams portfolio will slow the current year to date trajectory." Shares in Boston Beer had a rough week, ending about 8% lower to $114 at the moment, primarily driven by UBS's downgrade. Year to date, shares managed to squeeze out a small gain of 5%.

    Mastercard

    UBS lowered its advice for Mastercard (MA) from neutral to sell with a $403 price target. Analysts at UBS see some 7% downside potential for the global payment and technology company as they cite that "slower consumer spending in the US and a weak global economy are putting a drag on the company's prospects. Although Mastercard is a attractive safe haven in the financial industry, the exposure to weakening consumer spending makes a slowdown in key metrics simply unavoidable in the coming months." Shares in Mastercard ended the week almost 3% lower on the back of the downgrade and the news that the company, Visa (V) and a group of US banks settled a litigation case for $7.25 billion. US retailers sued the banks and the payment operators for illegally fixing the "swipe" fees that merchants pay to accept debit and credit cards. Year to date, shares of Mastercard advanced 15%.

    Eaton Vance

    Bank of America/Merrill Lynch downgrades Eaton Vance (EV) from neutral to underperform with a $29 price target. Analysts at the bank see few reasons to hold shares in the investment fund manager and advisor of high net worth individuals, but still place their target price 7% above the current stock price. Analysts of Bank of America note that "Eaton Vance has suffered from uneven flows for some time. We forecast July quarter outflows to worsen to -$1.7 billion, equivalent to a -3.4% annualized loss rate vs. basically flattish flows in the April quarter." Shares of Eaton Vance trade flat for the week, up 13% so far this year after shares benefited from the rally in equity markets in the first quarter of the year.

    Family Dollar Stores

    Bank of America/Merrill Lynch downgrades Family Dollar Stores (FDO) from neutral to underperform with a $60 price target. Analysts see some 12% downside potential for the retail discount chain. Analysts at Bank of America are cutting the full year 2013 earnings estimate on concerns that margins and earnings will disappoint. "Given the performance that the stock has had, expectations are very high... but execution risk is even higher, in our view." Shares of Family Dollar Stores have returned 17% so far in 2012, but fell 3% over the last week as a result of the downgrade. Shares had a decent run so far in 2012 after the company raised its full year earnings outlook and boosted its dividend.

    Conclusion

    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.

    Themes: short-ideas Stocks: AMAT, AMD, DAL, EV, FDO, LXK, MA, SAM, V
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