Thursday's Top Upgrades (and Downgrades)


This series, brought to you by Yahoo! Finance, looks at which upgrades and downgrades make sense, and which ones investors should act on. Today, we'll find out why Cedar Fair (NYS: FUN) shareholders had no fun yesterday morning, while investors in both Vivus (NAS: VVUS) and eBay (NAS: EBAY) walked away happy. Fasten your seat belts, and let's begin with...

What goes up, must come down
Cedar Fair shareholders have been treated to a pretty wild ride over the past year, as their shares gained 61% in value to hit a new 52-week-high of $32.95. Unfortunately, one analyst has decided to play killjoy at the amusement park operator's party yesterday, as Hilliard Lyons announced a downgrade to "neutral."

What's got Hilliard feeling so down about Cedar Fair these days? Probably, it's as simple as the law of gravity: What goes up, must come down. And in the case of Cedar Fair, "what goes up" is the stock price, and "what comes down" is... also the stock price.

So here's the problem in a nutshell. On the one hand, Cedar is a great dividend play for investors who like to get their profits in the form of quarterly dividend checks -- 5% payouts, year-in and year-out. And yet, at a share price that's now hit 20 times earnings, despite Wall Street pegging the firm for only 6% annual long-term growth prospects, 5% is probably all the profits investors can expect to get. Moreover, if Cedar Fair shares return to more reasonable, traditional levels of valuation, it would take a near-halving of share price to get the stock down to a level where P/E equals the sum of the stock's dividend, plus its projected growth rate: ground zero for "fair price" among value investors. Buyer beware.

Viva la Vivus!
Speaking of reasons to be wary, the stock scaremongers at Citron Research just issued a frightening report about Vivus. Claiming it's "astounded by the weakness of Vivus' intellectual property protection," and warning that lack of "strong patent protection" is a key weakness for the company -- whose shares leapt 14% in trading on Wednesday, after Vivus confirmed its receipt of FDA approval for its new Qsymia diet drug -- Citron is waving investors away from the stock, and possibly prepping for a short attack.

Undeterred by the rumors, analysts at MLV & Co. have elected to go ahead and up their price target on Vivus in response to the good news from FDA. While not quite as optimistic about the stock as their peers at Brean Murray (who yesterday set a $52 price target on Vivus), MLV still thinks the shares are worth more than they're selling for on the open market today, and believes Vivus will hit $40 within a year. Are they right?

Unfortunately, it's really too soon to tell. For the time being Qsymia isn't yet on the market, and until it is, there's no way of knowing precisely how well it will sell, or how profitable it will be for the company. Lacking revenue numbers, much less profits numbers to work from, investors are best advised to stay away from this stock till the picture gets a bit clearer. Citron's warning, right or wrong, just gives you a second reason to do what you should be doing anyway, i.e., nothing for now.

eBay: Should have just "bought it now"
Fortunately for investors, Vivus isn't the only company getting higher marks on Wall Street. Thanks to the folks at stock shop Benchmark, we also have a new price target on eBay to examine. After beating Wall Street estimates on both revenue (which came in at $3.4 billion) and earnings ($0.55 pro forma) alike, eBay shares leapt to a new 52-week high.

Analysts at Benchmark think it could go even higher -- going as far as $50 a share over the course of the next year. They may be right, but don't bet your life savings on it.

Sure, on the one hand, eBay beat Street estimates with a stick, and kudos to them for it. On the other hand, though, the $3.7 billion eBay has earned over the past year still isn't enough to justify a P/E ratio of 15.5. Not with analysts convinced eBay cannot grow faster than 13.5% per year, it isn't. Plus, anemic free cash flow at the company (a mere $1.9 billion generated over the past 12 months) tells us that eBay is really only about half as profitable on a cash basis, as its GAAP numbers suggest.

Long story short, it's dangerous to go long eBay. Adventurous investors might even want to take advantage of Wall Street's failure to read the cash flow statement -- perish the thought -- and go short.

Fool contributor Rich Smith holds no position in any company mentioned above. Motley Fool newsletter services have recommended buying shares of eBay. The Motley Fool has a disclosure policy.
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