Please ensure Javascript is enabled for purposes of website accessibility

Why AOL, Inc. Slumped This Morning

By Brian D. Pacampara, CFA – Feb 7, 2014 at 1:31PM

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

Does this analyst make a good case or is it just more noise from Wall Street?

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of AOL, (NYSE: AOL) slumped 3% this morning after Bank of America downgraded the online content company from buy to neutral.

So what: Along with the downgrade, analyst Joyce Tran lowered her price target to $50 (from $56), representing about 6% worth of upside to yesterday's close. While growth investors might be attracted to AOL's strong revenue of late, Tran thinks that the stock's appreciation potential remains limited given management's disappointing cash flow outlook.

Now what: Bank of America now expects AOL to post 2014 full-year EPS of $2.02 on revenue of $2.48 billion, down from its prior view of $2.55 billion and $2.41 billion, respectively. "While AOL had turned around the advertising business with revenue and profit growth and had a record 4Q, we think our thesis had played out and based on its 2014 outlook, we no longer see upside to our estimates," Tran noted in a report to investors. When you couple that uninspiring outlook with AOL's strong share-price run over the past six months, I'd agree that the risk/reward looks pretty balanced at this point.

Brian Pacampara has no position in any stocks mentioned, and neither does The Motley Fool. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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

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 11/26/2022.

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.