Earnings season brings on a fury of upgrades and downgrades, and it can be an all-day affair just to get through them all. Today we look at two banks, an automatic-transmission maker, and a robotic-surgery company. Should you pay attention to Wall Street's call?
Reaction as of 1 p.m. ET
|Allison Transmission (NYSE: ALSN )||Initiated at Overweight||Up 0.5%|
|Regions Financial (NYSE: RF )||Upgraded from Neutral to Buy (Rochdale); Upgraded from Outperform to Strong Buy (Raymond James)||Up ~ 3%|
|Bank of Ireland (NYSE: IRE )||Downgraded from Outperform to Neutral||Down more than 1.7%|
|Intuitive Surgical (Nasdaq: ISRG )||Initiated at Outperform||Up almost 3%|
Sources: The Wall Street Journal, 24/7 Wall Street, Street Insider.
Barclays has initiated coverage of Allison with an Overweight rating.
- Why? After a lackluster IPO in March, Allison is still trading slightly lower than its opening price of $23. While many analysts have hold ratings on the transmission manufacturer, Barclays seems to like the great year-over-year net sales growth, despite a slowing military division.
- Justified? Yes. While TTM P/E is incredibly rich at 40 times earnings, the company is trading at 11 times forward earnings. With great net sales increases year over year, Allison continues to show promising growth in the commercial division -- the source of the bulk of its profits. The company is well insulated from European economic issues. as the majority of its business is U.S.-based.
Rochdale Securities upgraded regions to Buy from Neutral.
- Why? The Southeast regional bank posted strong earnings yesterday and enjoyed a subsequent pop in share price. Raymond James also upgraded the company to Strong Buy from Outperform.
- Justified? Yes. Regional banks are looking to be promising investments this year. Regions, similar to SunTrust, has been focusing on the branch level by improving individual balance sheets and getting rid of undesirable assets. Even though there is some geographic risk associated with the bank, company management has the right idea in sticking to the bread-and-butter banking model and profiting from the renewed interest in Florida real estate.
Bank of Ireland
Credit Suisse has downgraded Bank of Ireland to Neutral from Outperform.
- Why? Because of continued economic distress in Ireland and Europe, the company has witnessed increased late payments in its home-loan mortgage division. The European debt crisis offers little comfort to regional banks.
- Justified? No. The company's current distress is short-term. While the debt crisis will probably continue through the summer, Bank of Ireland is well capitalized and has fantastic management. Prem Watsa of Fairfax Financial, along with American investor Wilbur Ross, have large positions in the only remaining non-nationalized Irish bank.
Raymond James initiated coverage on Intuitive Surgical with an Outperform rating.
- Why? As expected, the company released a strong earnings report. Sales of the robotic surgical devices boomed in the first quarter of 2012, and the company released very encouraging guidance indicating more than 20% growth for the year.
- Justified? Yes. The stock is by no means cheap, but it is a typical high-growth tech story. What is most attractive about Intuitive Surgical right now is its overseas prospects. The great growth in the U.S. market explains the high TTM P/E, but look to the nearly untapped foreign markets to drive this company even higher.
Ratings are often based on short-term prospects and 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 themselves 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.