May 9, 2012
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 an iconic chocolatier, a watch and accessories maker, a sportswear company, and a natural-gas-based-fertilizer manufacturer. Should you pay attention to Wall Street's call?
Reaction as of 1 PM EDT
|Hershey (NYSE: HSY )
||Upgraded from hold to buy
|Fossil (Nasdaq: FOSL )
||Upgraded from hold to buy
||Up almost 0.5%
|Under Armour (NYSE: UA )
||Coverage initiated at buy
||Up over 1.7%
|Rentech Nitrogen Partners (NYSE: RNF )
||Downgraded from buy to hold
||Down over 6%
Source: Wall Street Journal Market Data Center
Argus upgraded Hershey from hold to buy.
- Why? Argus believes the company is realizing substantial sales growth.
- Justified? No. Hershey is indeed performing strongly and is shaping up to have an industry-leading year. In my opinion, this information is already priced into the stock. Hershey is trading around the industry average of 23 times sales.
The Benchmark Company upgraded Fossil from hold to buy.
- Why? After a pullback in share price, Benchmark believes the company is undervalued.
- Justified? Yes. Though the fashion accessory company missed on net sales estimates, it is well positioned to grow its Asian operations. U.S. sales growth remained strong, though margins shrank a bit. European debt issues are the biggest scare for the company, but I believe they will ride the storm out OK and remain a strong company.
The Benchmark Company initiated coverage of Under Armour at a buy rating.
- Why? Benchmark believes Under Armour's strong brand gives it multiple growth opportunities and insulates it from Europe.
- Justified? Yes. Top line growth for the company should still be in double digits, despite a slow economic recovery. The company used to trade at too rich of a valuation, but recent pullbacks have made it much more appealing.
Rentech Nitrogen Partners
Dahlman Rose downgraded Rentech from buy to hold.
- Why? After a record increase in new corn crops this year, Dahlman is concerned that the fall fertilizing will be limited as farmers are not sure what to plant in the following season.
- Justified? No. Rentech's natural-gas-fertilizer technology is efficient and effective. The stock is appealing as a long term hold, as overall agriculture trends should boost associated companies. Rentech is cheap on forward earnings at a little over 11 times projected sales.
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 -- 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.