Friday's Top Upgrades (and Downgrades)

Analysts switch stance on YRC Worldwide, Keurig Green Mountain, and Flowserve.

Jun 27, 2014 at 1:13PM

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 feature new buy ratings for YRC Worldwide (NASDAQ:YRCW) and Keurig Green Mountain (NASDAQ:GMCR). But the news isn't all good. Before we get to those two, let's take a quick look at why Goldman Sachs is...

Knocking the pipes at Flowserve
On a down day for Dow stocks in general, shares of Flowserve (NYSE:FLS) are suffering worse than most -- down nearly 2% as of this writing. For this, you can thank the unfriendly analysts at Goldman Sachs.

This morning, Goldman announced it was picking up coverage of the industrial flow management equipment maker with a sell rating. Strangely, though, the $78 price target that Goldman assigns the shares is actually $4 more than what Flowserve shares cost today. So what's up with that?

Quoted on this morning, Goldman argues that Flowserve has "a solid franchise that generates strong returns." What worries the analyst, though, isn't Flowserve's bottom line, but how investors might react to trends on its topline. Goldman says these top-line growth expectations "could disappoint," and warns that Flowserve's earnings, too, will probably come in 1%-2% below what other analysts are predicting this year and next.

That could be a problem. After all, at 21 times earnings, Flowserve is hardly a cheap stock today. Most analysts expect to see the company produce 14% annualized earnings growth over the next five years, and knocking even a point or two off of that growth thesis would make an already pricey stock look even more expensive.

On top of all this, Flowserve already isn't generating as much free cash flow as its income statement suggests. FCF for the past 12 months was only $375 million, according to S&P Capital IQ data -- a good $120 million behind reported earnings, and enough to shift the valuation proposition even farther toward the "overvalued" end of the scale.

Long story short, I'm in agreement with Goldman Sachs on calling the stock a sell. The only thing I don't get is the $78 price target on a stock that's clearly overpriced at $74. That one's the real head-scratcher.

Green Mountain gets greener
Turning now to the day's good news, we find analysts at Argus Research upgrading shares of Keurig Green Mountain to buy -- and sending the stock climbing the mountain, up 3.6% already.

Argus is looking for "solid" revenue and improved earnings at the single-serve coffeemaker-maker through at least next year. The question is whether such short-term performance is enough to justify a long-term buy rating on the stock.

Call me a pessimist, but I don't think it is. Here's why not:

Priced at 35 times earnings, Keurig shares look too expensive for the stock's consensus 17% long-term growth rate to justify. Granted, Keurig has factors in its favor that make the overvaluation less extreme than first appears -- $836 million in cash net of debt, strong free cash flow that exceeds reported net income by 14%, and a tidy 0.8% dividend yield to name just a few. But the long and the short of this story is that even after crunching all the numbers in the light most favorable to Keurig, I still see the stock as significantly overvalued relative to its growth rate.

Argus must think it a decent bargain regardless. I disagree.

Yellow flags at YRC Worldwide
And speaking of perpetually overvalued stocks -- YRC Worldwide. This one, too, earned an upgrade to buy on Wall Street today, this time with BB&T Capital doing the honors.

According to, BB&T thinks YRC Wolrdwide is in at least the "early stages" of a turnaround that the analyst believes will end up with YRC becoming once again a profitable operation. BB&T's bullish thesis relies largely on the fact that YRC has successfully extracted labor concessions from its union, and forbearance from its bankers, in deals that should last through at least 2019. Speaking as a banker, BB&T notes that "average interest expense [at YRC could drop] from ~8% to ~5% by 2016," freeing up more cash to pay down debt further, and accelerating YRC's march toward profitability.

And BB&T may be right. But even if it is, it's going to be an awfully long march for YRC.

Right now, the stock's still lugging around more than $1 billion in net debt on its balance sheet, and paying out upwards of $180 million annually in interest on this debt. Operating profits, and operating cash flow, which both briefly peeked over the breakeven level last year, are once again looking negative on a trailing-12-month basis -- so even a reduction in interest payments won't be enough to turn the company profitable until that gets fixed.

In short, while most analysts are still looking forward to seeing YRC turn a profit in 2015, I have my doubts. While there's a chance BB&T will be proven right about this, YRC remains a "trust but verify" stock. We'll want to see more positive numbers from the stock, before turning truly positive on the stock.

Rich Smith has no position in any stocks mentioned, and doesn't always agree with his fellow Fools. Case in point: The Motley Fool recommends Keurig Green Mountain.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers