5 Stocks Seeing Big Analyst Upgrades Now

By Michael French - January 28, 2012 | Tickers: MMM, AMGN, AN, CAT, NWSA | 0 Comments

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I have identified five stocks that analysts are showing optimism for.  Caterpillar (NYSE: CAT) and 3M (NYSE: MMM) are two powerful industrial plays right now.  Meanwhile, Amgen (NASDAQ: AMGN) and AutoNation (NYSE: AN) are benefiting from trends within their respective businesses. Finally, News Corp. (NASDAQ: NWS) is launching some interesting new media outlets. Let’s see what’s been happening with these five stocks:

BMO Capital raised its price target and earnings estimates for Amgen.  The new price target is $64, although the firm’s rating on the stock is still Market Perform.  As for news, Amgen just reported earnings.  The company was about in line with analyst estimates for earnings per share, and Amgen was able to beat on the top line.  Amgen also impressed analysts with its predictions for 2012, during which the company expects to earn between $5.90 and $6.15 per share and bring in revenue of $16.3 billion.  Amgen is also buying Micromet, a company that specializes in cancer treatments.  CEO Kevin Sharer had this to say: “It advances our pipeline and our R & D capability.  It puts us on a path to our goals for 2012 and beyond.”  I too think Micromet is a good addition for Amgen, and Amgen is a pretty attractive stock right now.  Amgen boasts a lower price/earnings to growth ratio than Johnson & Johnson (JNJ), Novartis (NVS), and Sanofi (SNY), for example.  Additionally, I expect popular drugs like Neulasta, Neupogen, Enbrel, Aranesp, and Epogen to either hold steady or grow a bit in revenue.  That, in turn, will help the company maintain or even increase its current dividend yield of 2.10%. 

Goldman Sachs increased its price target and earnings estimates for Autonation.  The new price target is $39, although the firm’s rating on the stock is still Neutral.  As for news, Autonation just reported earnings.  The company beat Wall Street estimates for earnings per share by a couple of cents and also beat on the top line by $130 million.  Additionally, Autonation enjoyed significant increases in a variety of sales metrics.  New vehicles sales were up by 13% and same-store new vehicle sales were up by 10%.  Meanwhile, sales for both domestic and luxury autos were up 21% and 28% respectively.  Autonation is also making moves in the capital markets.  The company is simultaneously buying back $250 million worth of shares and putting out $250 million worth of senior notes.  Those notes will be used to pay off other forms of debt, however.  For the time being, investors should stay away from Autonation.  The stock is prohibitively expensive – price to earnings ratio is 19.36, price/earnings to growth ratio is 1.00, and price to sales ratio is 0.38.  All of those numbers are higher than for similar companies such as Group 1 (GPI), Penske (PAG), and Sonic (SAH).  Furthermore, it is unlikely that the trends that have propelled Autonation, such as new vehicle sales, will keep up for much longer.

Jefferies, UBS, and Credit Suisse all increased their price target for Caterpillar.  Those price targets are $130, $117, and $138 respectively.  As for news, Caterpillar just reported earnings.  In fact, the company beat Wall Street expectations for earnings per share by 50 cents and expectations for revenue by over $1 billion.  Customers who reluctantly replaced their old equipment despite a tough economy played some part in Caterpillar’s success.  More importantly, however, growth in the world’s developing nations led to increased demand for the company’s construction supplies.  Caterpillar also made some comments about the situation in Europe.  CFO Edward Rapp said that the company is still doing some business there and that the fiscal situation probably won’t cause a global recession.  On the other hand, growth could be subdued in Europe for quite some time.  While economic uncertainty makes it tough to judge Caterpillar, we think the stock will do fine in 2012.  The stock’s price/earnings to growth ratio of only 0.50 certainly makes it a cheap, and Caterpillar can be expected to bring in decent amount of revenue even if the global economy doesn’t improve right away.  Furthermore, if the global economy does improve, Caterpillar will benefit handsomely from all the companies that are embarking on new construction projects. 

Jefferies raised its price target for 3M to $102, and the firm has a Buy rating on the stock.  The company just released a fine earnings report, and there were a variety of highlights.  Earnings per share estimates were beat by a solid four cents, and the company’s industrial and transportation unit did particularly well.  In fact, that division’s revenues increased by 14%.  With 3M forecasting earnings per share of $6.25 to $6.50, we like where this stock is going.  We expect the improving economy to keep 3M’s industrial and transportation business growing quickly.  3M has other lucrative businesses as well, however.  Healthcare, Consumer and Office, and Safety, Security and Protection Services all saw substantial growth in 2011.  These divisions are being run very well and will see their growth continue into 2012.  That, in turn, will allow 3M to maintain its dividend yield of 2.50% or even increase it.  One interesting story that investors should keep an eye on is the future of CEO George Buckley.  With his contract set to expire on his 65^th birthday in February, the board is still deciding on whether to look for a new CEO.  Even if there is a bit of indecision about this though, we expect 3M to keep moving up because the company is strong enough to withstand a little boardroom drama.    

Morgan Stanley raised its price target and earnings estimates for News Corp.  The new price target is $22, although the firm still has an Equal-weight rating on the stock.  As for headlines, News Corp. just announced plans for a new Spanish language television network.  By partnering with the Colombian RCN Television, MundoFox hopes to go toe-to-toe with Telemundo and Univision.  Fox Sports is also making a push in Latin America.  The brand is launching Fox Sports Brasil, which will feature the Libertadores da America Cup amongst other things.  Additionally, there have been rumors that Fox Sports might acquire BandSports, although Carlos Martinez of Fox International Channels denied that was a possibility.  While MundoFox and Fox Sports Brasil will obviously be new sources of revenue for News Corp., it’s hard to justify buying this stock right now.  Time Warner (TWX) offers lower price to earnings and price to sales ratios despite the fact that it’s business is just as high quality as News Corp.’s.  Another great thing about Time Warner is its dividend yield of 2.50%.  A look at News Corp’s statement of cash flows also reveals some interesting things.  For instance, the company inexplicably issued nearly $2 billion of debt in 2011.  Walt Disney (DIS) offers investors a much healthier balance sheet.

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