Do These Analyst Calls Make Sense?

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Earnings season brings on a flurry of upgrades and downgrades, and it can be an all-day affair just to get through them all. Today we look at a financial-services company, a gaming company, an oil producer, and a casino giant. Should you pay attention to Wall Street's call?

Company

Rating

Reaction as of 1 p.m. ET

Capital One (NYS: COF) Upgraded from Sell to HoldDown 2.5%
Electronic Arts (NAS: EA) Upgraded from Hold to BuyDown almost 4%
Marathon Oil (NYS: MRO) Downgraded from Focus Stock to Market OutperformDown almost 3%
Wynn Resorts (NAS: WYNN) Reiterated Outperform, with price target of $176Down almost 5%

Sources: Street Insider, The Wall Street Journal.

Capital One
Argus upgraded Capital One to Hold from Sell.

  • Why? The company recently completed its buyout of HSBC's credit card portfolio and is adding jobs. Argus called its upgrade a "valuation" call.
  • Justified? Yes. Capital One has a strong enough balance sheet and looks to be rebounding in the financial-services industry. The company is trading very cheaply at only 7 times forward earnings.

Electronic Arts
Needham upgraded Electronic Arts to Buy from Hold.

  • Why? Needham believes that EA's strong sales growth can lead to gross-margin expansion.
  • Justified? Yes. After taking a hit in the past few days, Electronic Arts is looking pretty cheap on a long term basis. The company isn't expected to be a huge performer this year, even with the release of the next Call of Duty video game. Over the long run, though, this gaming staple should be a good hold.

Marathon Oil
Howard Weil downgraded Marathon to Market Outperform from Focus Stock.

  • Why? Howard Weil revised the price target to $33 from the previous $39.
  • Justified? Irrelevant. The "downgrade" is more a justification of Howard Weil's revising its price targets, not necessarily changing its stance on Marathon Oil. The analyst still sees the oil company as an outperformer for the year, with a strong growth trajectory and potentially lucrative drilling investments in Northern Colorado.

Wynn Resorts
Barclays reiterated an Outperform rating, with a raised price target of $176 from $164.

  • Why? Even though its latest results didn't impress investors, Macau VIP gaming numbers and the new Cotai project suggest good medium-term growth.
  • Justified? Yes, if for no other reason than that Steve Wynn is the gaming guru. He knows his business inside and out. Wall Street is concerned about the slowing overall Macau growth, but I firmly believe Wynn's projects outside Vegas will drive big-time future revenue growth barring an international global economic meltdown.

Ratings are often based on short-term prospects and not relevant to the long-term investor. However, we can use them to dig up useful facts about a company we may not have seen before. It's important not to let the ratings themselves color your opinion of a company. As Fools often say, it's better to do the research yourself and come to your own conclusions. Keep an eye on this series to stay in the know and save the rest of your day for coffee and Facebook.

At the time this article was published Fool contributorMichael Lewisowns no shares of the stocks mentioned above. The Motley Fool has adisclosure policy. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.

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