Monday's Top Upgrades (and Downgrades)
Stocks go up, stocks go down -- and so do analysts' opinions of them. This series, brought to you by Yahoo! Finance, looks at which upgrades and downgrades make sense, and which ones investors should act on. This morning, we take a look at new buy ratings for Boeing (NYS: BA) and Splunk (NAS: SPLK) , and we'll also meet Facebook's (NAS: FB) newest friend. Let's dive right in.
Time to buy Boeing?
Boeing's stock is down 9% over the past year and is underperforming the S&P 500 by eight points, but analysts at Argus are recommending investors grab a boarding pass and buy it again today. Details on the upgrade are hard to come by, but we do know that Argus is targeting an $85 share price on Boeing within one year. Is that reasonable?
At first glance, it should be. Post-slump, Boeing shares sell for a seemingly attractive P/E ratio of just over 12. That doesn't sound like a lot for a stock that many analysts believe will grow profits at 11% per year over the next five years, and that pays shareholders a 2.5% dividend while they wait. The real problem at Boeing, however, is that these profits may not be all they're cracked up to be.
Free cash flow for the past 12 months came in just over $4.1 billion, a bit less than reported income. At today's prices, the stock doesn't look to have too much downside, but it's not obviously cheap in my opinion, either.
Splunk could pop
On a brighter note, Barclays chose this morning to initiate coverage of curiously named new IPO Splunk with a recommendation to "overweight" it. According to StreetInsider.com, Barclays is calling Splunk "the first next generation vendor" in big data. Splunk, Barclays argues, "offers a platform solution that enables customers to store and analyze machine data, a category of data that previously had been mostly ignored due to the huge volumes involved. The potential usage cases for Splunk's offering are very diverse and hence the true long-term addressable market could be much larger than currently discussed."
If all that sounds rather fuzzy to you, then here are a few specifics: So far, Splunk shares are down 16.5% from their closing price on IPO day. Yet even after the sell-off, Splunk shares sell for a nosebleed-inducing valuation of 431 times trailing free cash flow... and infinity times the GAAP profits that Splunk doesn't have.
So could Splunk surprise us? Could Barclays be right that the stock is a buy? Anything's possible. Splunk popped on IPO day, and it could pop right back out of its present funk as well. But with the buy thesis hazy, and the valuation currently indefensible, there doesn't look like any compelling reason to gamble on the stock just this instant. There should be plenty of time to buy into this one once (if?) it proves it can earn a profit.
And now for the story everyone wants to hear about: Facebook. After fizzling at its IPO, the stock is cratering today -- down more than $3.50 a share, or 10%, as of this writing. Analysts are giving the stock a decidedly lukewarm reception, too, with both BTIG and Hudson Square starting it at variations of a hold rating this morning.
Facebook does have one friend on Wall Street, however. Susquehanna initiated the stock this morning as well, and according to this analyst, the stock's a buy, and will hit $48 a share within a year -- about a 40% profit! Is that likely?
Perhaps. Make no mistake, Facebook looks expensive at 81 times earnings. But it looked even more expensive before the IPO fell apart, and even more expensive than thatprior to IPO day. Meanwhile, the company is continuing to show impressive growth and profitability. A nice $1 billion earned in fiscal 2011, up 337% from what the company had earned just two years prior. If Facebook can continue growing at this lightspeed pace, even 100 times earnings might not be too much to pay for the company.
Today's sell-off just might be investors' best chance to get while the getting is good, and buy Facebook at a lower-than-IPO price.
Fool contributorRich Smithholds no position in any company mentioned. The Motley Fool has adisclosure policy. We Fools may not 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.
At the time this article was published
Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.