At The Motley Fool, we poke plenty of fun at Wall Street analysts and their endless cycle of upgrades, downgrades, and "initiating coverage at neutral." While the pinstripe-and-wingtip crowd is entitled to its opinions, we've got some pretty sharp stock pickers down here on Main Street, too. (And we're not always impressed with how Wall Street does its job.)
Given that, perhaps we shouldn't be giving virtual ink to "news" of analyst upgrades and downgrades. And we wouldn't -- if that were all we were doing. Fortunately, in "This Just In," we don't simply tell you what the analysts said. We also show you whether they know what they're talking about. To help, we've enlisted Motley Fool CAPS, our tool for rating stocks and analysts alike. With CAPS, we track the long-term performance of Wall Street's best and brightest -- and its worst and sorriest, too.
Beware the downgrade at 3-D Systems
Shares of Motley Fool Pro recommendation 3-D Systems (NYS: DDD) were flying Friday, up 4% -- but according to Yahoo! Finance at least, there was absolutely no news to explain why. Actually, though, if you listen real careful ... you just might hear a whisper of what happened. Turns out, 3-D Systems dodged a bullet yesterday. It didn't get downgraded by Barclays Capital.
But only by the skin of its teeth.
Friday morning, according to the ratings aggregators at Briefing.com, 3-D came this close to losing its coveted buy rating at the All-Star-ranked analyst. At the last moment, it seems, Barclays decided to halt the guillotine, and only cut its price target on the stock. But it did so significantly, and now predicts 3-D will not in fact hit $23 within a year after all, but only $19 -- a 17% cut to price target.
Think that's not such bad news? Well consider: At Friday's price, Barclays's new price target suggests there's only about 12% upside left in this stock -- as opposed to the 35% profit that the banker previously predicted. The really bad news, though, is that Barclays just might be right about 3-D's potential -- or even worse, even after the target price cut, this banker might still be too optimistic.
Consider: Within the community of machinery analysts, Barclays' star shines brightly. According to our research on CAPS, the majority of this analyst's recommendations in the industry "work out." (Which is bad news for Joy Global (NAS: JOYG) shareholders, too, because at the same time Barclays was cutting estimates on 3-D, it also shaved a couple bucks off its target for Joy.) Over the course of the three years we've been tracking its performance, Barclays has been right about Joy, right about fellow machinist Cummins (NYS: CMI) , and very right about Chart Industries (NAS: GTLS) , for example:
Barclays' Picks Lagging S&P by
630 points (!)
Add it all up, and over just three years of stockpicking, Barclays has racked up an astounding 1,250-percentage point lead over the S&P 500's performance in this single industry alone. And now, this ace machinery-stockpicker is taking a dimmer view of 3-D.
Too far, too fast?
What dimmed Barclays's optimistic view of 3-D? It's hard to say for sure, as none of the major media outlets seem to have keyed into this story yet. Perhaps, it's a simple matter of "rearview mirroring." After all, 3-D shares have tumbled $10 in value from their July highs near $27 a stub. A stumble like that is enough to shake anyone's confidence ...
Or perhaps it's the recent troubles at Hewlett-Packard (NYS: HPQ) . As investors in the 3-D printing field know, Hewlett has been an ally of 3-D rival Stratasys (NAS: SSYS) and an advocate for the whole idea of printing physical objects with your PC as an alternative to manufacturing them. But now, it seems HP intends to exit the PC realm entirely. That's potentially devastating news for Stratasys, which had counted on HP to help drive 500% sales growth of its printers over the next few years. If HP spins off its PC division, there's no guarantee it will keep the associated printer division -- or keep any interest in 3-D printing.
Foolish final thought
HP's exit could of course also have knock-on effects on 3-D, which loses a major industry advocate for the tech. But if that's the concern here, I think it's overblown. To me, there are at least two good reasons for 3-D shareholders to ignore Barclays's target price dip today. First and foremost, if HP's exit from PCs dings 3-D's business, it would likely savage Stratasys. The result would be 3-D getting to compete with a much-weakened rival -- and that would be good news for 3-D investors.
The second reason has to do with the same stock sell-off that may have spooked Barclays. Thanks to its plummeting stock price, 3-D now sports a market cap barely 24 times the size of its trailing earnings. Analysts on average, though, still expect 3-D to grow these earnings at 25% per year for the next five years. To me, that looks like a bargain price -- and if anything, a reason to raise price targets on the stock, not lower them.
At the time thisarticle was published Fool contributorRich Smithdoes not own (or short) any company named above. You can find him on CAPS, publicly pontificating under the handleTMFDitty, where he's currently ranked No. 383 out of more than 180,000 members. The Motley Fool owns shares of 3-D Systems.Motley Fool newsletter serviceshave recommended buying shares of Stratasys. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors.The Motley Fool has adisclosure policy.
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