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." So you might think we'd be the last people to give virtual ink to such "news." And we would be -- if that were all we were doing.
But in "This Just In," we don't simply tell you what the analysts said. We'll also show you whether they know what they're talking about. To help, we've enlisted Motley Fool CAPS, our tool for rating stocks and analysts alike. With CAPS, we'll be tracking the long-term performance of Wall Street's best and brightest -- and its worst and sorriest, too.
And speaking of the best ...
Alternative-energy pioneer Energy Conversion Devices (Nasdaq: ENER ) roared into the market yesterday when it announced a doubling of last year's revenues, thumped analyst profit estimates by a good 50%, and raised guidance for the current year's revenues. Shares immediately jumped ... and then turned tail and fell. They're falling again today.
Huh?
I know. Confusing. But put on your thinking caps, Fools, because it's going to get more confusing still. At least three analysts have recently weighed in on the results, and to try to get some clarity on what's happening with the shares -- and more importantly, what will be going on -- we're going to take a look at each analyst's opinion, and its record, beginning with ...
Jefferies & Co.
Jefferies took one look at ECD's promise of a sequential decline to 31% gross margins in the first quarter and predicted "higher gross margins." Jefferies already rates the stock a "buy." Now it's raising its price target on the shares by 68%, to $96.
The logic seems strange to me, but then again, Jefferies' buy rating on this stock is already beating the market by a good 159 points of relative outperformance. Jefferies has also made profitable picks elsewhere in the industry: Evergreen Solar (Nasdaq: ESLR ) , Suntech (NYSE: STP ) , and MEMC Electronic (NYSE: WFR ) are among them.
Cowen & Co.
- CAPS rating: 80.66
- Accuracy: 47%
The second-best analyst in our profiled today rates ECD "neutral," according to Briefing.com. But Cowen is talking as though it thinks nothing of the sort. According to Cowen, ECD turned in a "solid beat" yesterday and is probably being conservative on its guidance. If that's the case, Jefferies' apparently implausible theory that lower margins are actually higher margins begins to make sense.
Lending further credence to Cowen's bullish stance is that the analyst already has a record of picking a solar 10-bagger -- First Solar (Nasdaq: FSLR ) -- and correctly panned German solar play Qimonda. Cowen scored 46 CAPS points on its negative rating of the stock.
Piper Jaffray
- CAPS rating : 78.12
- Accuracy: 46%
Last but not least -- well no, actually last and least -- we come to the only bona fide downgrade of the day. Perhaps embarrassed at being out-nonsensed by Jefferies' logic, Piper Jaffray issued the most confusing opinion of all: Downgrading ECD to neutral while simultaneously upping its price target on the shares.
Says Piper, ECD's "near-term cost roadmap ... does not appear to be aggressive enough to be able to compete with traditional poly based modules (that could benefit from potential decline in polysilicon prices in 2010) or from alternate thin film technologies (like customers of [Applied Materials (Nasdaq: AMAT ) ])." In other words, Piper thinks ECD must cut prices to compete with all of the other companies and technologies crowding into this arena. Piper therefore takes ECD's predicted margin compression at face value and predicts lower gross margins in the first half of fiscal 2009.
Strangely, that logic makes sense. And it's important to note that although its overall record is the worst of the three, Piper has a tie score with Cowen on its First Solar pick, a triple on JA Solar (Nasdaq: JASO ) , and a respectable score on SunPower to its credit as well. So in the solar industry in particular, Piper's no slouch.
Bringing it all together
So what's a Fool to make of this mess?
The upshot seems to be that Wall Street is bullish on Energy Conversion Devices … and so far, so good. The two better-performing analysts love the stock, while the worst performer -- which isn't half-bad in solar -- still thinks it's at worst a "hold," even though it's less bullish on the stock now than it was yesterday.
I'm not so sure. When I look at ECD, I see a company that's selling in excess of 700 times earnings and burning free cash flow all the while. Sure, the Street's projected 56% growth rate looks tempting -- but at this price, I'm pretty sure I can resist the temptation.
Can you? Come on over to CAPS and tell us why, or why not.
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