Wednesday'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 start off with an upgrade for Angie's List (Nasdaq: ANGI  ) before moving on to a downgrade at Viacom (Nasdaq: VIAB  ) . Then we'll find out why one analyst is raising a glass -- and a target price -- to Molson Coors Brewing (NYSE: TAP  ) .

Angie's makes the buy list
Let's start with Angie's List, publisher of online quality reports for consumer services such as home and auto repair and health care. Citing the expiration of "lockups" on shares that had been on ice since the company's IPO, analysts at Oppenheimer think the risk of selling pressure has passed and feel that now's a good time to start moving back into Angie's List shares -- currently down 32% since the lockups expired.

More fundamentally, Oppenheimer argues that Angie's List is likely to grow its revenues at close to 50% per year over the next few years. The analyst thinks Angie will improve earnings before interest, taxes, depreciation, and amortization (EBITDA) in tandem, "even if consumer marketing slows."

And good for them if they can do that. But investors must not lose sight of the fact that interest, taxes, depreciation, and amortization are all still real expenses, no matter whether Oppenheimer prefers to ignore them. "ITDA" still detracts from profits ... and it's still a big reason Angie's List is unprofitable today, and unlikely to become profitable next year, either.                                                                                                                    

Tuning out of Viacom
If Wall Street seemed just a bit too optimistic about Angie's List this morning, however, there's a mistake in a different direction going on at Viacom. This morning, analysts at Wunderlich worried aloud over declining ratings at Viacom's youth-centered Nickelodeon and MTV channels, and the stock's suffering in consequence. Worse, fearing that falling ratings portend lower profits, Wunderlich cut the stock's rating to "neutral."

And yes, if "the children are [Viacom's] future," declining ratings in this key age demographic probably is cause for worry -- but let's not get too panicky. Remember, at a P/E ratio of just 14.5, and a price-to-free cash flow ratio that's even lower, it's entirely possible that Viacom's ratings are already priced into the stock. Meanwhile, analysts still expect the company to grow its earnings at upwards of 16% per year over the next five years.

Long story short, 14.5 times earnings isn't a lot to pay for this level of growth. Add in Viacom's 2.2% dividend yield, and investors have a big margin of safety to fall back on -- "a big, yellow sponge of safety," you might call it, to cushion the blow of any drop in ratings.

Warning: Molson Coors kills brain cells
And now, at long last, it's "Miller time" -- check that. Molson Coors time. As you may be aware, Coors just paid out its quarterly dividend yesterday, meaning today the company has a bit less money than it had yesterday -- and the stock price should fall accordingly. Instead, it's rising. Why?

Probably, the answer can be traced back to British banker HSBC, which announced today that it's raising its target price on the braumeister by $4, to $47 a share. Coors fans should note, however, that even with the higher target price, HSBC still thinks the most Coors buyers can expect to earn is about a 6% profit on the stock over the course of the next year -- and they may not earn even this much.

Consider: At 14.6 times earnings, Coors doesn't cost much more than Viacom. But Coors has different problems. Actual slow growth, for one, as opposed to just people worrying about slower growth. (Analysts expect Coors to grow profits at less than 5% per year over the next five years, barely outpacing inflation.) High debt for another.

Remember: You can't just look at a stock like Coors and say: "14.6 P/E? Cheap!" You have to consider the debt load. Back out Coors' cash, and add in its $4.9 billion debt, and the P/E on this stock would look more like 22.5 than 14.6. Maybe the Silver Bullet's shares would be worth buying if they were literally made of silver. They aren't. And they're not worth $47, either.

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


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