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." The pinstripe-and-wingtip crowd is entitled to its opinions, but we have some pretty sharp stock pickers down here on Main Street, too. And we're not always impressed with how Wall Street does its job.
So 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 moves on Wall Street. First up, a pair of opposing moves in the trucking industry as CH Robinson
Truck ... stop
It was earnings season for the nation's truckers this week. Intermodal specialist CH Robinson reported an 8% bump in quarterly earnings and an equivalent rise in revenues. Zack's Research praised the company for preserving a "cash-rich balance sheet with no debt" and predicted that it will continue to "benefit from its freight transportation business." But Stifel Nicolaus looked at the same numbers and decided they merited a downgrade to "sell."
Why? Maybe for the simple reason that the stock just costs too doggone much. Strong balance sheet notwithstanding, it's hard to justify a share price of 23 times annual earnings when Robinson is supposed to grow only 15% per year over the next five years ... and managed to grow only half that fast last quarter.
Still, not all truckers are created equal. At 70 times earnings, Arkansas Best, downgraded at KeyBanc for missing earnings this morning, looks even more overpriced that Robinson on the surface. Lift the hood, though, and the stock looks much more fundamentally sound. For one thing, Arkansas Best trades below book value, which limits its downside. It also generates strong free cash flow. I'd wager that at just 6 times trailing free cash, but with a 15% growth rate ahead of it, Arkansas Best will live up to its name. In fact, I have such a strong hunch on this one that I'm going to go ahead and publicly recommend buying it on Motley Fool CAPS right now.
Want to see how the pick works out? Add Arkansas Best to your Watchlist.
Black or red?
In a second tale of two cities, analysts at Imperial Capital anointed Wynn Resorts an "outperformer" this morning, while reserving judgment on "in-line" rival Las Vegas Sands. LVS reported earnings just yesterday, crushing the estimates Wall Street had put forward. But Wynn isn't expected to report its own numbers for a few weeks. So does this give it more time for upside?
Of the two, LVS looks to have more optimism priced into its stock at 36 times earnings, while Wynn's 28 P/E shows that it's high-profile board dispute is still keeping a lid on the shares. Still, even if Wynn looks a bit cheaper, it's curious to see Imperial favoring the stock, which is pegged for much slower growth (14% annually over the next five years) than Wall Street expects to see at LVS (28%). Plus, while the disparity between reported income and actual free cash flow at Wynn is already shrinking (bad), LVS is only just now starting to show free cash close to the levels of its claimed net income (good). This suggests to me that the value proposition at Wynn is starting to deteriorate, while that at Las Vegas Sands is growing.
Honestly, neither stock looks particularly attractive to me at today's prices. Wynn used to, but analyst growth estimates on that one have come down so far, so fast, in recent months that I'm now seriously considering canceling my own "outperform" recommendation on the stock. Could be it's getting close to time to start placing bets on Las Vegas Sands instead.
Inergy powers up
Last but not least, we come to propane supplier Inergy. I warned you about this one last summer, when the stock looked overpriced at $35 and change. It's since lost nearly half its market cap and fallen to sub-$20 levels. This, however, according to Raymond James (which was also down on the stock), is as bad as things are going to get.
The company just accepted an offer from Suburban Propane to sell off its retail propane business for $1.8 billion -- well over half of Inergy's current market cap. And while some investors argue that this strips Inergy of its reason for being (propane operations making up three-quarters of pre-spinoff-Inergy's annual revenues), it's interesting to note that the midstream operation Inergy will be keeping is by far its more profitable business, boasting a 35% gross margin.
Like my fellow Fool Travis Hoium, I'd take a wait-and-see approach to this one and suggest delaying any purchases until we have a better view of what Inergy's business will look like going forward. But on balance, selling a lower-profit margin business, keeping a higher-margin business, and getting 75% of your own market cap back for the lower-quality business sounds like a smart move to me.
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Whose advice should you take -- Rich's, or that of "professional" analysts such as Stifel, Imperial, and Raymond James? Check out Rich's track record on Motley Fool CAPS and compare it with theirs. Decide for yourself whom to believe.
Fool contributor Rich Smith owns no shares of, nor is he short, any company mentioned above. He does, however, have public recommendations available on more than 50 separate companies. Check them out on Motley Fool CAPS, where he goes by the handle TMFDitty -- and is currently ranked No. 349 out of more than 180,000 CAPS members. The Motley Fool has a disclosure policy. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.