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." While the pinstripe-and-wingtip crowd is entitled to its opinions, we've got some pretty sharp stock pickers down here on Main Street, too. (And we're not always impressed with how Wall Street does its job.)
Given this, perhaps we shouldn't be giving virtual ink to "news" of analyst upgrades and downgrades. And we wouldn't -- if that were all we were doing. Fortunately, in "This Just In," we don't simply tell you what the analysts said. We also show you whether they know what they're talking about.
Today, we're going to take a look at three high-profile ratings moves on Wall Street: an upgrade for SandRidge Energy (NYSE: SD), followed by a downgrade at First Solar (Nasdaq: FSLR), and a big change in price target for Agnico-Eagle Mines (NYSE: AEM). Let's dive right in...
Stifel builds a buy thesis for SandRidge
Last week, we talked a bit about the prospects for a bounce-back at SandRidge Energy, which nearly got washed away by a wave of pessimism over its recent purchase of oil driller Dynamic Offshore Resources. Investors didn't like the price ($1.3 billion), and the resulting sell-off made SandRidge one of the weakest performers a couple of weeks ago.
Now, ace investment banker Stifel Nicolaus is saying this sell-off has turned into a buying opportunity. Citing "material" improvement in SandRidge's balance sheet post-spinoff of SandRidge Mississippian Trust I and SandRidge Permian Trust, Stifel sees SandRidge as poised to outperform. As I noted last week, the company's also improving its financial situation. Free-cash-flow negative itself, SandRidge's purchase of Dynamic will (at least according to management) add about $200 million in net free cash flow inflows to the combined firm.
It's not enough to turn SandRidge into a FCF-positive company overnight, granted, but it's a start -- and maybe a big enough start to justify the upgrade.
First Solar burnt
Speaking of cash-burners, First Solar is in the news again -- and not in a good way. Last week, the thin-film specialist warned that a failure to obtain construction permits from the State of California in a timely fashion had jeopardized its sale to Exelon (NYSE: EXC) of the "Antelope Valley Solar Ranch One" solar project. A big Department of Energy loan hinges on receipt of the missing permits, and if Cali doesn't come through soon, First Solar may be obligated to buy the solar farm back from Exelon for $75 million, plus costs.
For a company that wasn't generating cash to begin with, this is not good news. So when we hear that Brigantine Advisors revoked its buy rating on the stock this morning on "valuation concerns," I suspect the situation in California had something to do with it.
There's (less) gold in them thar hills
Finally, we come to perhaps the most interesting analyst move of the morning: RBC Capital Markets' radical rethink of the price target on Agnico-Eagle Mines. It's earnings week in gold country, you see, and gold bugs are hopping in anticipation of the news. One of four major gold shops expected to report earnings this week, Agnico is also the second recipient of an analytical tongue-lashing from RBC. Barrick Gold (NYSE: ABX) got a price target cut, and a downgrade on top of it, from RBC just last month. The reset at Agnico, though, looks even more significant than last month's news. Whereas Barrick got its price target cut by only a bit more than 10% (to $62 per share,) RBC is now saying that Agnico is worth a good 35% less than it previously believed -- a mere $43 per share.
What's got RBC so down on Agnico? It's hard to say. None of the major media outlets seems to have details of this downgrade -- but I'll bet price played a part. Selling for nearly 50 times earnings (and a price-to-free cash flow ratio nearly as steep), Agnico-Eagle Mines is priced for gangbusters growth. Meanwhile, consensus estimates on the Street say the most we can expect to see out of this company is mid-single-digits earnings growth over the next five years.
Gold bugs are right to point out that Agnico's sitting on a big pile of gold -- about 21.3 million troy ounces, at last report. But until Agnico figures out a way to earn more profit from its treasure, it might as well have 21.3 million ounces of iron pyrite -- for all the good they'll do Agnico's shareholders.
Whose advice should you take -- mine, or that of "professional" analysts like Stifel, Brigantine, and RBC? Check out my track record on Motley Fool CAPS, and compare it to theirs. Decide for yourself whom to believe.
