By Larry Gellar
We've identified 5 big-name stocks that are getting pessimistic reviews from Wall Street analysts. While Verizon (VZ) and Yahoo (YHOO) didn't have their ratings changed, Kimberly Clark (KMB), Nvidia (NVDA), and Oracle (ORCL) are receiving true downgrades. Let's see what's been happening with these 5 stocks:
Kimberly-Clark
Analyst action: UBS downgraded Kimberly-Clark from Buy to Neutral with a new price target of $75.
Recent performance: Kimberly-Clark made it over $74 about a week ago, but the stock price is now below $72.
Recent headlines: Kimberly-Clark's fourth-quarter profits were 18% lower than last year at this time, and analysts are also concerned about the company's future performance. The company is predicting earnings per share of $5 to $5.15 in 2012, which is somewhat lower than Wall Street estimates of $5.24. Kimberly-Clark blamed their meek corporate guidance on macroeconomic factors, particularly in the world's most developed countries.
What we think: Kimberly-Clark's dividend yield of 3.80% will certainly appeal to some investors, but the company appears to be poorly equipped for today's economic climate. In a market where many consumers buy the cheapest product available, Kimberly-Clark could have trouble with future revenue growth. For the time being, we prefer Procter & Gamble (PG), which offers lower price to earnings (16.5) and price/earnings to growth ratios (1.8). Procter & Gamble has better margins too - those numbers are 50.04% gross and 18.55% operating. One bright spot for Kimberly-Clark is healthcare, however. That segment saw notable growth of 10% last quarter, and investors should reconsider Kimberly-Clark once the company proves that it can put a larger focus on that division.
Nvidia
Analyst action: JMP Securities downgraded Nvidia from Market Perform to Underperform with a new price target of $12.50.
Recent performance: Nvidia almost fell to $13.50 not too long ago, but the stock price is now close to $15.
Recent headlines: While the average analyst estimate for Nvidia's current-quarter revenue was $1.057 billion, the company is now saying that number should be closer to $950 million. The problem is that PC manufacturers are having to pay more for hard drives due to the floods in Thailand, and that in turn has made them less willing to include Nvidia's separate graphics cards in their systems. Additionally, sales of the Tegra 2 mobile processor are declining quicker than previously expected, although Nvidia hopes to combat that by increasing production of the Tegra 3 chip.
What we think: Nvidia's price to earnings (14.22) and price/earnings to growth (0.98) ratios are both higher than Intel's (INTC) despite Nvidia's poorer margins (50.70% gross and 16.89% operating). That has us thinking NVDA is a bit overpriced, and a variety of trends in the PC market are hurting the company right now. Nvidia will announce its earnings on February 15th, and investors should wait until then to see what the company's plans for lower-end chips are.
Oracle
Analyst action: Macquarie downgraded Oracle from Outperform to Neutral.
Recent performance: Oracle almost fell to $25 in December, but the stock is now trading for over $28.
Recent headlines: Oracle has a new product coming out called Oracle Utilities Meter Data Analytics. Oracle's Rodger Smith had this to say: "The new solution offers immediate answers -- right off the shelf -- to utilities that need to start putting MDM data to work across the entire enterprise for operational efficiency and superior customer experiences." Oracle also is also making available Oracle Utilities Mobile Workforce Management and Oracle Utilities Mobile Workforce Analytics.
What we think: These utility-minded products are a good direction for Oracle. Utilities are using new technology to enhance their business, but they've had a bit of trouble figuring out what to do with all their new data. That's where Oracle's software comes in. Oracle's soft spot, though, is its valuation. For a price to earning ratio of 15.68 and price to sales ratio of 3.90, it's hard to justify purchasing this stock instead of IBM (IBM) or Microsoft (MSFT). Both of those stocks have price to earnings and price to sales ratios that are lower than Oracle's.
Verizon
Analyst action: Goldman Sachs lowered both its price target and earnings estimates for Verizon, although the firm still has a Buy rating on the stock.
Recent performance: Verizon shares got to over $40 in December, but the stock price is now below $38.
Recent headlines: Verizon is investing $8 million in a company called Skyfire. The company is somewhat known for its mobile browser, but more importantly it could help phone operators with their streaming video capabilities. Verizon also just reported earnings. Revenue was up 7.7 percent, but the company actually posted a loss due to a couple of important factors. A big pension adjustment was made, and Verizon also had to subsidize many of the iPhone 4S's that its customers bought during the quarter.
What we think: Low value metrics (price to earnings = 15.15, price/earnings to growth = 1.31, and price to sales = 0.98) and high margins (61.14% gross and 22.35% operating) make Verizon the phone company to buy right now if there is one. On the other hand, a shaky business model and highly competitive industry mean that most investors should probably look elsewhere. We would recommend holding off on VZ until phone carriers consolidate or become less cutthroat with their phone subsidies. Regardless, this stock does offer a very nice dividend yield of 5.2%.
Yahoo!
Analyst action: Both Goldman Sachs and UBS lowered their earnings estimates for Yahoo.
Recent performance: Yahoo has traded in the same range for about a month now.
Recent headlines: With Jerry Yang (one of Yahoo's co-founders) resigning from the board and new CEO Scott Thompson making his first earnings announcement, Yahoo has quite a bit of news going on right now. The gist of the earnings report was that revenue and profit fell for the second straight quarter, although operating income was up on a year-over-year basis.
What we think: Yahoo has lower price to earnings (19.05) and price to sales (3.75) ratios than Google (GOOG), so the current valuation isn't absurd. On the other hand, the management appears to be a bit deluded. The Asian assets needed to be sold quite some time ago, but that hasn't happened yet for some reason. Yahoo still has some tricks up its sleeve, but investors need to be concerned about the current lackadaisical approach. Additionally, the momentum that hiring Scott Thompson temporarily brought to the company may have subsided now that Jerry Yang resigned. If Yahoo doesn't act soon, the one place where it has an advantage - its news-related divisions - may suffer permanent damage.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
No comments:
Post a Comment