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're looking at higher price targets for Apple (NAS: AAPL) and Intuit (NAS: INTU) , but a downgrade for gold miner Agnico-Eagle (NYS: AEM) . Without further ado, let's mine some data.
Apple of their eye
First up, analyst Needham found some time this morning to update its valuation on Apple, for the first time since February. Previously pegging the iPhone maker at a $620 valuation, the analyst now thinks Apple can reach $750 a share within a year.
You might think the more bullish valuation is predicated on a big iPhone5 launch -- and you'd be right, but only in part. Turns out, Needham is making "across-the-board upward revisions in all of Apple's businesses," from iPhones to iPads to computers. (Did you know Apple also makes computers? It kind of used to be their thing...)
With Apple shares selling for just 15.5 times earnings, but projected to grow these earnings at more than 22% per year over the next half-decade, the higher price target looks like a no-brainer. The main risk, warns Needham, is that with Steve Jobs no longer at the helm, Apple "may no longer innovate at the same rapid pace and with the same disruption." For now, that's a risk they're willing to overlook.
In other tech news, UBS argued this morning that Intuit's post-earnings "dip" in share price is giving investors a chance to buy a piece of the tax software specialist on the cheap: "INTU was down as much as 3% after hours based on what initially appeared to be a miss and weak guidance. However, when adjusted for various moving pieces, INTU's business health and L-T strategy remain intact."
UBS loves the fact that 80% of Intuit's revenue is recurring and can be relied to return year in and year out. Expanding margins are also a plus. What's more, the share price looks more than fair. While on the surface Intuit shares cost a pricey 24 times earnings, the fact that the company generates so much more free cash flow ($1.1 billion) than it claims as net income ($792 million) means Intuit's actually a lot cheaper than it looks.
Price-to-free-cash-flow ratios at the firm hover around 16, which when compared to 15% long-term growth estimates looks appropriate. Add in a tidy 1% dividend yield, and a bargain begins to present itself.
Agnico-Eagle gets its wings clipped
You can make a similar argument about Agnico-Eagle Mines. Currently unprofitable under GAAP accounting standards, the company's still making money where it counts: on the cash flow statement.
Trailing free cash flow for the past year comes to $265 million at Agnico. Unfortunately, that's not enough to get the company's P/FCF ratio down much below 30. It's also not enough to justify the stock's rising past its present $46 share price -- at least, not according to Global Hunter Securities, which downgraded the company this morning. According to StreetInsider.com, today's downgrade is basically a "valuation call." Global Hunter still thinks Agnico is worth $46, a price target it had set previously. It's just not sure there's any "significant upside" left -- hence, its "neutral" designation on the stock.
And the analyst is right to be cautious. The consensus on Wall Street right now is that Agnico-Eagle's profits have basically peaked, and are unlikely to grow faster than the rate of inflation over the next five years. Assuming they're right, Agnico's heady valuation, and modest 1.8% dividend yield, provide new investors little reason to want to own the stock.
Fool contributor Rich Smith holds no position in any company mentioned. The Motley Fool owns shares of Apple. Motley Fool newsletter services have recommended buying shares of Apple. Motley Fool newsletter services have recommended creating a bull call spread position in Apple.
The article Wednesday's Top Upgrades (and Downgrades) originally appeared on Fool.com.
Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.