At The Motley Fool, we poke plenty of fun at Wall Street analysts and their endless cycle of upgrades, downgrades, and "initiating coverage at neutral." The pinstripe-and-wingtip crowd is entitled to its opinions, but we have some pretty sharp stock pickers down here on Main Street, too. And we're not always impressed with how Wall Street does its job.
So perhaps we shouldn't be giving virtual ink to "news" of analyst upgrades and downgrades. And we wouldn't -- if that were all we were doing. Fortunately, in "This Just In," we don't simply tell you what the analysts said. We also show you whether they know what they're talking about.
Corning's future: All up, no down?
For the second time in as many weeks, shares of Corning got a boost on Wall Street, thanks to analyst commentary. Last week, the big news was Stifel Nicolaus coming out in support of the stock on hopes it will receive a tailwind from Apple's (Nasdaq: AAPL ) introduction of the much-anticipated iPhone 5. The iPhone uses Corning Gorilla Glass in its screen, and if iPhone sales do well, it follows that Corning should share in that wealth.
Today, analysts at Oppenheimer went one step farther, arguing that the stock has not just "plenty of upside" but also "limited downside." Given its generous dividend and the ability to buy back shares, explains StreetInsider.com, Corning has the ability to put the brakes on any slippage in stock price. Meanwhile, on the upside, Oppenheimer sees positive catalysts as "volumes start to rebound" (increasing revenues) while "display glass prices moderat[e]" (expanding profit margins on those revenues).
But here's the thing: Corning already gets great margins -- close to 29% net profits as a percentage of revenue. Corning's probably isn't its earnings, but its earnings "quality." Over the past 12 months, you see, Corning earned a respectable $2.2 billion. Unfortunately, its free cash flow for the period was only $1.1 billion -- about 50% of reported income. That's up from the less than 30% last year, but down from nearly 60% in 2009 and nearly 80% in 2010.
In short, there's room for improvement at Corning, and potential for the stock to rise. Until Corning gets its cash machine working right, though, the stock could remain stuck.
Thompson Creek: Bubbling to the top?
Another stock getting some analyst love was molybdenum miner Thompson Creek -- subject of a downgrade a few weeks ago at the hands of BB&T Capital -- but an upgrade today. But was it deserved?
Citing a "recent bounce in moly prices and further potential follow-through, which should allow for the company to be in compliance with its debt covenants," analyst Dahlman Rose managed to simultaneously praise Thompson ... and damn it with faint praise. I mean, mere "compliance" with debt covenants? That's a reason for optimism? Seems to me it's more putting a finger on the problem that's dogging Thompson Creek: debt, and the lack of cash production that's causing it.
As I wrote two weeks ago, Thompson is "burning cash, resulting in about $778 million worth of negative free cash flow over the past 12 months." What's more: "With a balance sheet that shows it to be already $200 million in debt, this trend is unsustainable. Eventually, Thompson must either start producing cash from its operations or cease to operate."
What was true then remains true today. Unfortunately, in the meantime, iron miner BHP Billiton (NYSE: BHP ) (iron, like molybdenum, is used in making steel, which is in a funk) came out and proclaimed the end of the global mining boom. That's hardly good timing for a debt-laden cash-burner in the mining business -- and it's hardly good news for Thompson Creek.
Omnivision: seeing clearer
And not to end on a down note, let's wrap up with Omnivision. The phone-camera chipmaker announced $0.21 in quarterly earnings this week, missing by a penny. It also gave a very wide range for what to expect in the current quarter -- anywhere from $0.21 to $0.37 per share in profit.
At the midpoint of the range, though, that's about a penny above consensus projections, and it appears the promise is good enough for Wall Street. This morning, Needham & Co. raised its price target on Omnivision by $3 a share, to $21, calling the quarter a "significant top-line beat" and praising "October guidance that was ~$100MM above the Street."
The stock's selling for about 14.5 times earnings, and analysts expect 15% long-term growth -- so it's hardly overpriced. Add in the fact that Omnivision has close to $300 million in cash in the bank, against a market cap of only $864 million, and the stock's arguably cheaper than it looks.
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Whose advice should you take -- Rich's, or that of "professional" analysts such as Oppenheimer, Dahlman Rose, and Needham? Check out Rich's track record on Motley Fool CAPS, and compare it with theirs. Decide for yourself whom to believe.