Rating Wall Street's Ratings

Michael Lewis, The Motley Fool
Updated

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 solar company, an organic-food company, a media conglomerate, and a utility company. Should you heed Wall Street's call?

Company

Rating

Reaction as of 1 p.m. EDT

First Solar (NAS: FSLR)

Neutral to positive

Up almost 3%

Annie's (NYS: BNNY)

Coverage initiated at hold

Up 2.8%

Viacom (NAS: VIA)

Reiterated outperform, with price target of $61

Nearly flat

Alliant Energy (NYS: LNT)

Downgraded from buy to hold

Down more than 1.3%

Source: The Wall Street Journal.

First Solar
Avian upgraded First Solar to positive from neutral.

  • Why? The stock price took a big hit after a major earnings miss for the first quarter, making shares cheap enough to look attractive for the solar manufacturer.

  • Justified? Yes. The company did suffer from only its second loss in its history, but a revised strategy and new top-level management could portend a brighter future for the company.

Annie's
Canaccord Genuity initiated coverage on Annie's at a hold rating.

  • Why? Canaccord likes the company, but the recent IPO has the company trading at a very rich 30 times earnings.

  • Justified? Yes. Annie's is a great company with a strong brand and great growth prospects, but it's simply too expensive right now to be a buy. The company would need years of consistent phenomenal growth to justify the valuation. That may well happen, but it's unclear at the moment.


Viacom
Barrington Research reiterated an outperform rating for Viacom and raised the price target to $61 from $57.

  • Why? Barrington focused on Viacom subsidiary Paramount, which has improved its operating margins and promoted franchise films with some use of Viacom's own TV series.

  • Justified? No comment. Price targets from the research shops and banks tend to change with the wind. Viacom will have a strong year and is most likely a buy, as it's cheaper than, say, CBS. I believe the stock will perform well over the long run, but with no specific price target in mind.

Alliant Energy
Wunderlich downgraded Alliant from buy to hold.

  • Why? The company fell short of expectations on earnings per share and guided toward the lower end of its year-end outlook.

  • Justified? Yes. The adjusted EPS numbers (non-GAAP) are better-looking than the official earnings, as they excluded some of the weather issues the company has faced. The problem is that weather is unpredictable, and similar conditions could continue to hurt the company. Until Alliant can improve operations elsewhere to make up for acts of nature, it is probably a hold.

Ratings are often based on short-term prospects and therefore not relevant to the long-term investor. However, we can use these to dig up useful facts about a company we may not have seen before. It's important not to let the ratings alone 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 thisarticle was published Fool contributor Michael Lewis owns no shares of the stocks mentioned above. Motley Fool newsletter services have recommended buying shares of First Solar. The Motley Fool has a disclosure policy.
We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Advertisement