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: higher price targets for Kodiak Oil & Gas (NYSE: KOG) and GMX Resources (Nasdaq: GMXR), plus a new buy rating for Boeing (NYSE: BA). Let's dive right in.
No bears at Kodiak
Analyst upgrades have been flying fast and furious around hydrocarbon upstart Kodiak Oil these past few weeks. Here at the Fool, we've been debating the stock's fortunes, too. This morning, one more analyst weighed in on the debate when Oppenheimer announced it was upping its price target on Kodiak by more than 14%, to $12 a share. But is it really worth that much?
A major player in the Bakken shale, Kodiak is often discussed in the context of fellow oil explorers Continental Resources (NYSE: CLR) and Samson Oil & Gas (NYSE: SSN). So let's put the stock through its paces, and see how it compares to the competition.
I've mentioned a few times now that I find Kodiak's 50-plus P/E ratio disconcerting. It's certainly cheaper than unprofitable Samson (because Samson has almost no revenues, much less profits). On the other hand, Kodiak shares cost much more than even the arguably overpriced shares of its rival Continental.
One thing that Kodiak has that the other stocks don't, however, is a growing consensus on Wall Street that it will outgrow all but the most optimistic expectations for future profits. So far, no one has yet ventured a guess at Samson's growth rate. Kodiak, however, is pegged for 50% annualized earnings growth -- three times faster than the estimate for Continental. Is that fast enough to justify the stock price? I don't think so... but I could be wrong.
- Add Kodiak Oil & Gas to your Fool Watchlist.
Gunning for growth at GMX
Another Bakken play making headlines today is tiny GMX Resources. After it put in a poor performance in 2011, analyst MLV & Co. thinks GMX is poised for a comeback in 2012, and just raised its price target on the stock 12% to $2.25.
If anything, though, GMX's position looks even more tenuous than Kodiak's. Kodiak boasts a clean balance sheet with more cash on hand than debt owed its creditors. GMX, in contrast, is in hock to the tune of $250 million or more, burning cash like mad, and priced at nearly 90 times the amount of profit it might earn next year. All of which makes GMX sound like a great short idea.
But a buy? Not so much.
But is Boeing a better buy?
And finally, we come to our honest-to-goodness upgrade of the day: Boeing. Undeterred by its miserable, bottom-quintile rating on CAPS, the indefatigable optimists at Maxim Group have coughed up another hairball this morning in the form of a new initiation of Boeing at "buy."
Calling Boeing "diversified" and "under-appreciated," Maxim predicts the shares will hit $90 within a year. But here's the thing: Boeing is the furthest thing from underappreciated -- even by me. The company accomplished a full-fledged turnaround last year, racking up a string of "biggest ever" commercial airplane sales and winning a major military contract to build the Air Force's next-gen refueling tanker to boot.
Problem is, Boeing's 14 times earnings valuation already prices in the prospects for 13% long-term earnings growth. Meanwhile, the risk of multibillion-dollar penalty payouts for overdue 787 deliveries is most decidedly not priced in. Nor is the risk that upstart airlines like Indonesia's Lion Air, which account for much of Boeing's recent sales success, may ultimately prove unable to pay for all the new planes they've been ordering.
Arguing that Boeing's gone about as far as it can go already, I clambered out on a limb and publicly recommended selling the shares earlier this year. I stand by that recommendation still.
Whose advice should you take -- mine, or that of "professional" analysts like Oppenheimer, MLV, and Maxim? Check out my track record on Motley Fool CAPS, and compare it to theirs. Decide for yourself whom to believe.
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