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 consumer-goods giant, a biotech, an aluminum manufacturer, and a Midwest bank. Should you pay attention to Wall Street's call?
|Procter & Gamble (NYSE: PG )||Downgraded from Outperform to Perform||Down 1.2%|
|Idenix Pharmaceuticals (Nasdaq: IDIX )||Upgraded from Market Underperform to Market Perform||Up 2.6%|
|Kaiser Aluminum (NYSE: KALU )||Upgraded from Hold to Buy, with a price target of $63||Up 0.8%|
|Citizens Republic Bancorp (NYSE: CRBC )||Downgraded from Outperform to Perform||Down 1.8%|
Source: Wall Street Journal Market Data Center.
Procter & Gamble
Oppenheimer has downgraded Procter & Gamble to Perform from Outperform.
- Why? Oppenheimer was disappointed with P&G's mixed quarterly earnings release. While net sales increased a few percentage points, earnings per share from continuing operations took a drastic 22% hit over last year's numbers.
- Justified? No. P&G is one of the most stable, mature investments available to the public. As I see it, the weak results come from a few temporary factors:
- The company divested its snacks segment to Kellogg, pushing the associated sales figures into discontinued operations.
- Some relatively major restructuring efforts are in process for both the pet and beauty segments, which cost a whopping $350 million.
- Gross margins hurt a little bit from increasing commodity prices, though this was partially offset by an increase in product pricing. On the whole, the company is as healthy as ever and doesn't warrant the downgrade.
JMP Securities raised Idenix to Perform from Underperform.
- Why? The company took a major hit in mid-April after unfavorable news from the FDA, but many are still hopeful for Idenix's hepatitis-C drug.
- Justified? Yes. Idenix has a strong drug pipeline for hepatitis and HIV/AIDS treatment. Biotechs are some of the most volatile stocks out there, and Wall Street analysts swing from bulls to bears in a matter of minutes depending on the current FDA rumor. Buyout speculation had the company trading high in today's flat market.
KeyBanc Capital Markets raised Kaiser to Buy from Hold, with a price target of $63.
- Why? KeyBanc was impressed by Kaiser's fantastic earnings release and long-term outlook.
- Justified? Yes. After emerging from bankruptcy in 2006, Kaiser decided to focus on processing aluminum for cars and planes. The strategy looks like it's working, as profits more than doubled from 2011. By focusing on its niche business, the company is insulated from rising aluminum costs.
Citizens Republic Bancorp
Oppenheimer downgraded Citizens to Perform from Outperform.
- Why? Oppenheimer believes that Citizens, to redeem its TARP obligations, will have to issue around $100 million in equity next year.
- Justified? No. While the equity offering may indeed occur next year, Citizens is following the extremely positive trend of many regional banks. The company is finally recovering from its major real estate acquisition in 2006, which obviously suffered the brunt of the 2007-2009 storm. Earnings were stellar, and the company has made a meteoric rise in stock price over the past year. The main risk, as noted by Oppenheimer, is the $300 million the bank still owes in TARP money.
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.