Please ensure Javascript is enabled for purposes of website accessibility

Why Loma Negra Stock Just Dropped 15%

By Rich Smith - May 14, 2018 at 4:34PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

UBS interrupts the parade of analysts singing this cement maker's praises.

What happened


Six days after being upgraded to "overweight" at Morgan Stanley, and five days after winning a buy rating from Citigroup, shares of Argentinean cement maker Loma Negra Compania Industrial Argentina Sociedad Anonima (LOMA -1.91%) got their comeuppance this morning when analysts at Swiss megabank UBS weighed in -- with a sell rating.

Reversing course and cutting its rating on Loma Negra stock from "buy" to "sell," UBS also cut its price target on the stock nearly in half, saying that within a year, it expects Loma Negra shares to be selling for $14.50. Curiously, investors are responding to the news by reducing the price they are willing to pay for the stock today to even less than that.

By 2:30 p.m. EDT, Loma Negra stock was already down 15.3%, selling for just $14.31 a stub.

A wrecking ball hits a wall

UBS takes a wrecking ball to buy ratings on cement maker Loma Negra. Image source: Getty Images.

So what

Does that make sense? It's hard to say. As of this writing, neither of my primary sources for ratings news -- neither nor -- has any details at all on why UBS suddenly decided to downgrade Loma Negra stock. All anyone seems to know is that the downgrade happened, full stop.

And yet, the last actual news we got out of Loma Negra itself was pretty darn good. In its first-quarter 2018 earnings report last week, the company announced that it grew its sales 42% and its earnings per share 41% year over year, while cutting its debt load by 43%.

Now what

What's more, Loma Negra told investors that although it expects to grow "at slower rates" over the balance of this year, "following the significant recovery experienced in the prior year ... healthy dynamics in our markets with increasing demand for cement and concrete" are still anticipated.

At its new and improved market capitalization of just $1.7 billion, with $88 million in trailing earnings and $79 million in free cash flow, Loma Negra's stock now sells for 21.5 times free cash flow and 19.3 times GAAP (generally accepted accounting principles) earnings. With minimal debt on its books, I think these are fine prices to pay for a shares of a company that analysts -- UBS excepted, apparently -- still think will grow earnings at 60% annually over the next five years.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Loma Negra Compañía Industrial Argentina Sociedad Anónima Stock Quote
Loma Negra Compañía Industrial Argentina Sociedad Anónima
$5.14 (-1.91%) $0.10

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/30/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.