Three 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.
Acquisition Rumors May Unmask this Retailer's True Value
Kohl’s initially traded higher by 2.5% on Wednesday, but then closed near flat after BMO issued a note to clients identifying the retailer as a potential buyout target. The firm cited strong cash flow and an attractive valuation as the leading contributors to the firm’s belief.
At first this “prediction” sounded ludicrous to me, as I could not comprehend a retailer or private equity firm having enough capital, or wanting to acquire Kohl’s. However, upon closer consideration, it may make sense.
A 30% premium would be slightly more than $18.5 billion, or 13 times earnings and less than one times sales to acquire Kohl’s. The company’s insiders control just over 2% of the company, meaning a messy takeover with outraged executives would be unlikely. Lastly, the company owns almost 40% of its stores, which is unusual for such stores, and allows a potential acquirer the ability to easily raise capital or refinance debt.
While I do not believe in chasing acquisition rumors -- just look at what happened to Life Technologies and Office Depot today -- I do believe that all of the potential reasons for an acquirer to buy also relate to the retail investor. This is a cheap stock with a lot of options. I would look hard at Kohl’s.
Analyst Provides a Major Vote of Confidence for this Small Biotech
It has been a volatile year for Threshold Pharmaceuticals, and on Wednesday the stock rallied 11% following a major upgrade and a price target of more than 100% its current price. Over the last 14 months, all eyes have been on the company’s lead product, a late phase product called TH-302, which is used to treat cancers.
Last year a partnership with Merck KGaA and a 63% upside in progression-free survival helped Threshold become one of the best performing stocks in the market. However, Piper Jaffray took a deeper look at the product, and the company, and is now saying that TH-302 is superior to rivals when used for soft-tissue sarcoma. The analyst believes the company’s hypoxia-activation platform will be able to be used to treat a wide array of cancers, not just one or two, and sees massive potential down the road.
This upgrade served as reassurance to the investment community, as the stock broke above its $4.50 resistance. Now, the stock is facing resistance at $5.10, but if it can surpass this level then I’d look to buy at these levels.
Speculative Investors Now Getting Burned
BlackBerry has now lost more than $4 from its one-month high prior to its new BB10 release, and on Wednesday it lost another 4.5% after Pac Crest issued a bearish note and forecast to investors. The analyst, James Faucette, is saying that shipments for the new Z10 are in the 275,000-325,000 range, according to recent checks. If so this would be far below the consensus of 1 million shipments that are expected. As a result, the analyst issued a revised outlook of just 1 million-1.5 million shipments for the May quarter, and believes the Z10 is cannibalizing the Bold 9900 sales.
As an investor, I have warned others about this possibility, saying not to buy this stock on speculation, but rather wait until we see how it is perceived by consumers. This was the company’s most significant attempt to regain market share. If it's unsuccessful then I can’t imagine profitability being a part of its future, and I believe the stock will fall significantly lower.
In a previous article I wrote about analysts “following the leader” and how one upgrade/downgrade can start a chain effect that dictates 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, or the opinions of analysts, and if you can refrain from making such decisions in favor of your own due diligence then large gains could follow.
BrianNichols has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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!