Wednesday's Top Upgrades (and Downgrades)http://www.fool.com/investing/general/2013/08/21/wednesdays-top-upgrades-and-downgrades.aspx Rich Smith
August 21, 2013
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 downgrades for two of the biggest names in fertilizer -- PotashCorp (NYSE: POT) and Mosaic (NYSE: MOS). But the news isn't all bad, so before we get to those two, let's find out why one analyst says...
Take two shares of Herbalife, and call us in the morning?
According to Argus, you see, Herbalife isn't just healthy -- it's positively prospering. Earnings growth is said to be strong, and with Herbalife accelerating its program of share buybacks, earnings-per-share growth should be even stronger. Argus is raising its estimate for fiscal 2013 earnings to $5.15 per share, and projecting $6 per share profits in 2014 -- a 16.5% increase. What's more, I think Argus is right about this.
Priced just a shade over 14 times earnings today, and still generating significantly more free cash flow ($524 million) than it reports as GAAP net income ($499 million), quality of earnings at Herbalife looks very strong indeed, which is not what you'd expect to see at a bona fide pyramid scheme. Most analysts see the stock growing earnings faster than 15% per year over the next five years. At that growth rate, today's valuation of a bit more than 14 times earnings, or less than 13 times free cash flow, looks quite cheap. Add in a modest 1.8% dividend yield, and I think Herbalife shares are priced to move.
In deep... fertilizer