Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Wednesday's Top Upgrades (and Downgrades)

Don't let it get away!

Keep track of the stocks that matter to you.

Help yourself with the Fool's FREE and easy new watchlist service today.

This series, brought to you by Yahoo! Finance, looks at which upgrades and downgrades make sense, and which ones investors should act on. Today, our headlines include an upgrade for Coinstar  (NASDAQ: OUTR  ) and a new buy rating for Deckers Outdoor (NYSE: DECK  ) . And on the bad-news side...

Mondelez International gets a downgrade
Let's tackle that bad news first. Bright and early Wednesday morning, analysts at Argus Research issued a downgrade on Kraft (UNKNOWN: KRFT.DL  ) spinoff Mondelez International  (NASDAQ: MDLZ  ) . But why?

Priced at 13.8 times earnings, Mondelez shares trade for about the same valuation as prior partner Kraft. They pay a 4.5% dividend yield, whereas Kraft pays none. Perhaps best of all, analysts project 12.1% annualized earnings growth for Mondelez, a rate nearly twice the 6.3% expectation for Kraft.

On the other hand, it's not all good news for Mondelez. For one thing, the company brings with it a heaping helping of debt -- $26 billion, net of cash on hand. (For its part, Kraft's debt pile is a slightly less dizzying $9.3 billion tall.) As a result, if you were to factor debt into the equation, Mondelez's price (plus debt)-to-earnings ratio would actually come out closer to 22 than to 14. Even with 12% growth, and even with a 4.5% divvy, that's a pretty pricey proposition. Argus is right to shy away.

Up on Deckers
Next on deck: Deckers. The Uggs bootmaker sports a shiny new buy rating this morning, courtesy of Janney Capital, which just initiated coverage with a $50 price target., which reported the rating, quoted Janney as pooh-poohing the firm's "recent challenges" as "transitory." According to the analyst, a combination of fashion trends, price elasticity, and higher costs for sheepskin is hurting Deckers' profits in the short term. In the longer term, however, Janney says Deckers' brand is far from "death." To the contrary, the analyst says Deckers "maintains brand relevance." It's extending its brand into new categories of product, hoping to see sheepskin prices decline in 2013, and boasts a solid financial position that should see it through to the eventual turnaround.

Personally, though, I'm not sure where Janney is getting all this. While Deckers' financial position -- $62 million cash, $275 million debt -- isn't exactly critical right now, it's far from ideal. Net debt at the firm makes up more than 15% of Deckers' market cap. Meanwhile, even as Deckers' income statement purports to show $155 million in annual "profit," the firm's actual performance over the past year (as reflected in the cash flow statement) shows cash burn of more than $7 million.

Result: Free cash flow negative, and debt-positive, Deckers isn't nearly the bargain Janney makes it out to be. Not yet, at least.

Drop some money on Coinstar?
Last but not least, we come to Coinstar, maker of the omnipresent coin-exchange machines in the front of your local grocery store, and owner, too, of the Redbox brand of DVD rental kiosks.

Coinstar scored an upgrade to "outperform" from Northland Securities this morning, alongside a price-target hike to $62. And finally, here, we find an analyst upgrade I can support.

Priced at less than 11 times earnings, growing these earnings at nearly 17% annually, and with a balance sheet nearly clean of all debt, Coinstar looks cheap from the get-go. But in fact, it's even cheaper than it looks. Coinstar, you see, reported earning only $159 million in GAAP profits over the past year, but in fact, it generated $279 million in real free cash flow.

Result: At a price-to-free cash flow ratio of just 5.5, with percentage growth prospects nearly three times that number, Coinstar is decidedly cheap today. Feel free to drop some money on it, just like Northland says.

Fool contributor Rich Smith has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. 


Read/Post Comments (1) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Add your comment.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2150328, ~/Articles/ArticleHandler.aspx, 10/24/2016 10:43:34 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 18,230.92 85.21 0.47%
S&P 500 2,151.69 10.53 0.49%
NASD 5,303.32 45.92 0.87%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/24/2016 10:28 AM
DECK $54.35 Up +0.20 +0.37%
Deckers Outdoor CAPS Rating: ****
KRFT.DL $0.00 Down +0.00 +0.00%
Kraft Foods CAPS Rating: *****
MDLZ $42.35 Up +0.14 +0.32%
Mondelez Internati… CAPS Rating: ****
OUTR $0.00 Down +0.00 +0.00%
Outerwall CAPS Rating: **