Upgrades, Downgrades And Price Target Adjustments

by: David Ristau

Earnings season is over, and we are continuing to update price targets, buy/sell ratings, etc. for companies that we currently cover in our EquityAnalytics department. Today, we have updated several more companies with these ratings. They include Salesforce.com (NYSE:CRM), Gildan Activewear (NYSE:GIL), Hanesbrands (NYSE:HBI), Intuit (NASDAQ:INTU), JA Solar (NASDAQ:JASO), Insight Enterprises (NASDAQ:NSIT), SAP (NYSE:SAP) and VF Corp. (NYSE:VFC).

The chart below shows new ratings, price targets and buy/sell ranges versus old ones:

Click to enlarge

Unknown ObjectCRM – Maintain At Sell, Increase PT From $72 To $93

Salesforce.com (CRM) remains one of our continuous conviction Sells. We see this company as still heavily overvalued despite impressive growth. The company's increase in PT comes from a slightly better than expected earnings report coupled with a lower discount rate that better works with the growth comparisons from CRM to other technology companies. The company, though, is still nowhere near where it should be. With a future P/E ratio of 68 and 8.2 P/B ratio, the company is severely overvalued. While growth remains positive, we continue to be worried about the company's SG&A levels as well as its inability to turn significant revenue growth into operating income. The company had an operating loss as it had to increase R&D to "stay the leader." Increasing competition from more established firms like Oracle (NYSE:ORCL), SAP (SAP) and Cisco (NASDAQ:CSCO) will continue to cut CRM's growth. SG&A grew at over 50%, beating out revenue growth. The company continues to have larger sales, administrative and general growth than sales growth - a recipe for eventual disaster.

GIL – Upgrade From Hold To Buy, Drop PT From $40 To $36

We dropped Gildan Activewear's 12-month PT to $36 on the basis that the company dropped guidance and missed what we were expecting for Q4. The slowdown in the economy seems to be affecting GIL negatively for Q4. Additionally we saw the company report a significant increase in debt in Q3 as the company took debt on for an acquisition. That debt negatively affects the overall PT for the company. We believe, though, the company has moved into a Buy because the move to downside on GIL from an August pullback is severely overdone. This is a good company with low debt and clean balance sheet. They make a solid buy at current levels.

HBI – Upgrade From Sell To Hold, Increase PT From $26.50 To $32

Hanesbrands (HBI) was upgraded from Sell to Hold based on the latest quarterly results for the T-shirt and undergarment company. We believe HBI is dealing much better with rising costs than originally anticipated, and the company outperformed our targets for operating margin. The company's sales outpaced rising costs, and while there is some concern over the second half of the year, we see HBI as doing a solid job of maintaining strong margins. We still feel the company is fairly fair valued, but more increases in margins and holding above 10% on operating margin for the rest of the year would be a strong sign for the company.

INTU – Upgrade From Hold To Buy, Increase PT From $62.50 To $68.50

Intuit (INTU) gets a nice bump in price target as well as upgrade to Buy after a strong quarter from the company that was not expected from our estimates. We upped our forecasts for the company for FY2012 and FY2013 with expectations of operating income north of $1.1B for both years. Growth may not be as strong, but the company is very solid with strong margins. The company saw an increase in cash and cash flow, which is the lifeblood of a company. Expect this company to remain solid during the tough year ahead.

JASO – Maintain At Buy, Drop PT From $35.50 To $5.50

NSIT – Maintain At Hold, Increase PT From $20.50 To $23

Insight Enterprises (NSIT), which operates in application software, IT and security systems for companies' mainframe, had an excellent quarter and surpassed our yearly expectations. The company is growing better than we expected, and we upped our price target for that tick up in expectations across the board. We maintained the company at hold as it got a solid 20% pop off the earnings, and the stock is sitting now at just above our buy range target. On any dips of 5-10% would be a nice place to go long. A company improving that dramatically in a tough market is doing something right, and it is something we want to Hold.

SAP - Maintain At Hold, Increase PT From $61.50 To $52

VFC - Maintain At Buy, Drop PT From $150 To $146

VF Corp. remains one of our favorite stocks to buy in the apparel manufacturing sector. The company recently picked up Timberland, and we like what we are seeing out of VF Corp. right now. The company saw a tick down in our price target on increased debt to take on the TBL deal, which does bring down equity value somewhat. At the same time, we believe the market is significantly undervaluing strong growth from Vanity Fair. The company has a strong mix, and we expect to see solid growth for this company throughout the rest of the year.

Disclosure: I am long ORCL.