Four Noteworthy Analyst Calls on Wednesday

Brian is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Sometimes an analyst issues a revised outlook or changes his/her rating, but does not inform investors of the reasons behind the call. These typically move stocks on the call alone; the price target and outlook. However, some analysts provide detailed reasons behind the call; these are the outlooks that should be noted and used as part of your fundamental research. Therefore, I am taking a look at such outlooks and determining the best way to utilize the information.

Company

Ticker

Firm

Call

Pharmacyclics

(NASDAQ: PCYC)

TheStreet

Buy

Chesapeake Energy

(NYSE: CHK)

Bernstein

Buy

Green Mountain Coffee

(NASDAQ: GMCR)

Roth Capital

PT

OpenTable

(NASDAQ: OPEN)

Oppenheimer

Perform

Upgrades

After two sessions of harsh selling, shares of Pharmacyclics rallied 1.2% on Wednesday after TheStreet upgraded shares to Buy. The firm cited strong financials, “robust” revenue growth, and a respectable return on equity as the reasons for the call. Last quarter, the company posted its first earnings report of actual sales, with more than $100 million in revenue and $75.61 million in profit.

The stock is very expensive with a price/sales of 25.64 but is expected to grow rapidly in 2013 -- some say revenue of $500 million. So far Pharmacyclics has continued to trade higher even when it appears expensive. Personally, I think it’s too expensive, but it hasn’t shown any signs of trending lower yet.

Over the next few months you can rest assure that rumors of a potential takeover will occur for Chesapeake Energy. The company’s controversial CEO Aubrey McClendon is retiring, and you’d think that since he has built one of the best portfolios of energy assets in the country that the stock would be lower. However, he has stopped the acquisition of the company several times over, so Bernstein is upgrading shares on the basis of his retirement. The firm said that with McClendon out, the company or its assets become attractive and should lead to significant interest. It’s no secret that acquisition rumors can take a stock higher; therefore I agree that Chesapeake will rally for this reason.

Roth raised Green Mountain’s price target from $40 to $55 after the company successfully managed the dire predictions of K-Cup patent expirations. The stock had fallen in part due to these expiring patents, yet has remained a leader and highly competitive in the market. Roth believes that the stock should see appreciation due to this fact, which is hard to deny. Green Mountain has done much better than I expected and continues to create new products that could lead to a boost in 2013.

Downgrades

OpenTable is a volatile stock, one that reacts to almost every headline. Therefore it’s no surprise that it slipped 4% after being downgraded by Oppenheimer. The firm notes the stock’s valuation after its strong run-up since August and that higher expenses for the company’s cloud-based services will put pressure on the stock. OpenTable does have a hefty valuation but is highly profitable for an internet-based company. Therefore, if profits are affected by the new service, then watch for selling pressure in the stock.

Conclusion

A firm that offers reasons for their call is taken more seriously due to providing substance for their reasons. However, like all analyst calls, there are always two sides to a story; and for every bullish call there is someone else who is bearish. Therefore, use this information as part of your research, but it shouldn't dictate your investment decision. 


BrianNichols has no position in any stocks mentioned. The Motley Fool recommends Green Mountain Coffee Roasters and OpenTable. The Motley Fool has the following options: Long Jan 2014 $20 Calls on Chesapeake Energy, Long Jan 2014 $30 Calls on Chesapeake Energy, and Short Jan 2014 $15 Puts on Chesapeake Energy. Try any of our Foolish newsletter services free for 30 days. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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