Four Analyst Calls That Are Moving Stocks 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; 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

Netflix

(NASDAQ: NFLX)

JPMorgan

Overweight

Groupon

(NASDAQ: GRPN)

Sterne Agee

Buy

Darden Restaurants

(NYSE: DRI)

CLSA

Underperform

Cliffs Natural Resources

(NYSE: CLF)

Deutsche Bank

Hold

Upgrades

Netflix traded higher in the early session by more than 2% after JPMorgan increased its price target from $180 to $206. The firm believes that although earnings have grown, the stock is running on momentum from much of its recent rally. Therefore, the call is more of a technical call. I tend to agree with the firm, as there are many on Wall Street who are reminiscing of times of the past, when the stock was at $300. Netflix is a different company but has managed to change the perception of the market, and for that fact it could rally higher.

Shares of Groupon rallied higher by more than 7% in early trading after Sterne Agee upgraded the stock to Buy. The firm issued one statement in particular that was very bold and to-the-point: “We have greater conviction in the company’s ability to evolve beyond its current business.”

Now, where the “greater conviction” comes from is anyone’s guess. But also noted was the company’s decision to focus on physical locations for the “Groupon experience.” The stock has now rallied to a large degree with other social media stocks, and as I’ve discussed on several occasions, it is among the cheapest in the space. With that being said, I am not sure that I would buy at these levels because of the sustainability issues that exist, but I do acknowledge the points made by the analyst.

Downgrades

Darden Restaurants is lower by more than 2% in early session trading after CLSA initiated coverage with a bearish call. The firm notes that its channel checks indicate subdued traffic at best, and that the company’s promises to be more promotional have failed. This is a stock that has greatly underperformed the market over the last three months as fears regarding a slowed business are taking fundamental form. Therefore, I agree that there may be better places to invest your money.

Deutsche Bank downgraded shares of Cliffs Natural Resources from a Buy to a Hold after the company reported earnings on Tuesday after the market closed. The firm has remained one of the more bullish even as the stock has declined 50% over the last year. The stock is now trading lower by 17% in the early session and the analyst questions the timing of the company’s share issuance after a major dividend cut. The firm finds it worrisome on behalf of management seeing as how the public is expecting cash flow in 2013 to increase.

In addition to being cut from Deutsche, Citi also cut shares to Neutral. The stock may be cheap but the actions on behalf of the company are hard to explain during a year that was supposed to bring some balance, and after a quarter that showed some stability in revenue. As of now, it’s a hard puzzle to piece together, therefore investors should invest with caution, and I think a Hold rating may be appropriate.

Conclusion

In a previous article I wrote about analysts “following the leader” and how one upgrade/downgrade usually starts a chain effect that can dictate the trend of a stock. It is good to use this information as part of your research but you must ensure that you are assessing the stock and its valuation with your own due diligence. It is important not to make an emotional decision based on the performance of a stock, and if you refrain from making such a decision then large gains could follow.


BrianNichols has no position in any stocks mentioned. The Motley Fool recommends Netflix. The Motley Fool owns shares of Darden Restaurants and Netflix. 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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