Friday'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, our headlines include a new buy rating for Workday (NYSE: WDAY  ) , a higher price target for Raytheon (NYSE: RTN  ) , and a lower one for Dendreon (NASDAQ: DNDN  ) . Let's dive right in.

Workday gets a payday
Starting us off on a bright note, Oppenheimer begins the day with a new outperform rating for software-as-a-service provider Workday. Shares are up 2.8% already on Oppy's endorsement, but with the analyst projecting an $80 stock price within a year, and Workday only costing $66 and change right now, it appears Workday shareholders can look forward to another 20% worth of profit. Or can they?

Putting a price target on an unprofitable operator like Workday isn't easy. The company plans to report its fiscal Q1 2014 earnings on May 22. But until then, and unless the numbers change by then, what we're looking at right now is a company losing close to $120 million a year (and growing), burning cash, and valued at an incredible 39.4 times its annual sales.

Granted, analysts on average see great things ahead for Workday, and project 50% earnings growth over the next five years. For now, though, the company has no earnings to grow, which makes that "50% growth" projection pretty much an exercise in guesswork. Just as much an exercise in guesswork, I suspect, as is Oppenheimer's price target. Caveat investor.

Raytheon rising?
Could a better bargain be found in the shares of a stodgier stock? Old-guard defense contractor Raytheon, perhaps?

Investment banker Stifel Nicolaus thinks so, and this morning, Stifel upped its price target on buy-rated Raytheon by $10, from $63 to $73. I don't necessarily disagree. For example, Raytheon could enjoy a spike in weapons sales in response to all the goings-on in Syria and North Korea lately. That might help to goose an estimated profits growth rate that, at 6.3% currently, looks rather anemic.

However, judging from the facts on the ground today, what we have here is a stock priced at a little more than 11 times earnings, growing at 6.3%, and paying a 3.5% dividend. I see the stock as perhaps fairly priced -- probably actually a bit overvalued -- and unlikely to enjoy the $10 share price surge that Stifel is projecting. Unlikely, that is, unless we see significant additional sales growth, over and above what analysts currently think likely.

Dendreon -- going down the drain 
Finally, we come to erstwhile biotech star Dendreon. The cancer researcher and maker of Provenge reported a $0.48-per-share loss yesterday, which was just about what Wall Street was expecting. Sales, however, came in significantly lighter than forecast, at only $67.6 million.

This has prompted a spate of selling activity on Wall Street, with Stifel and Roth Capital both downgrading Dendreon shares to sell yesterday, and Citi cutting the stock to sell as well, this morning. Even the company's fans (such as they are) are starting to lose heart.

This morning, RBC Capital, which still recommends holding the shares in hopes of a bounce back, cut its price target for Dendreon to $5. But that might be overoptimistic. Stifel, for example, says the company's situation is "hopeless" -- that it will never reach cash-flow breakeven, and will in fact run out of cash by the end of next year. (Not a happy prospect, considering the company already has more debt than cash on its books).

In short, Wall Street's now making the case that Dendreon will go to zero. Unless it finds a well-heeled buyer soon, I think that risk is real.

Motley Fool contributor Rich Smith has no position in any stocks mentioned. The Motley Fool owns shares of Dendreon and Raytheon Company.

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