Friday's Top Upgrades (and Downgrades)
Jun 8th 2012 3:32PM
Updated Jun 8th 2012 4:56PM
Stocks go up, stocks go down -- and so do analysts' opinions of them. This series, brought to you by Yahoo! Finance, looks at which upgrades and downgrades make sense, and which ones investors should act on. Today, we'll look at a new upgrade for SunTrust (NYS: STI) , a bearish tweak to the price target at lululemon athletica (NAS: LULU) , and a startling sell pronouncement for Cypress Semiconductor (NYS: CY) . Let's dive right in.
The SunTrust also rises
First up, SunTrust. This Atlanta-based banker snagged an upgrade from Argus Research this morning, which now rates the banker a "buy." According to Argus, SunTrust shares should be good for a run from today's $22 share price up to $30 over the course of the next 12 months -- about a 38% profit.
Sound interesting? Well, before you get too awful excited about the upgrade, here are a few facts to consider. First off, at 16.6 times earnings, and with long-term earnings growth pegged at 12%, the stock's not exactly cheap. To the contrary, SunTrust shares currently sport a PEG slightly above average for the money center banks as an industry. Meanwhile, SunTrust's 0.9% dividend yield looks positively stingy relative to the competition.
Prudent investors might be better advised to examine the shares of banks such as BB&T (NYS: BBT) or Wells Fargo (NYS: WFC) . At 13.5 and 10.6 times earnings, respectively, they're considerably cheaper than SunTrust. Plus, both BB&T and Wells pay dividend yields of 2.8% -- three times as rich as what SunTrust offers.
A doozy of a drop for lulu
Speaking of stocks that cost too much: lululemon athletica. This morning, analysts at UBS chopped $5 off their price target for the yoga apparelier. UBS still likes the stock, mind you, and with its $86 price target, still thinks lulu should be good for about a 34% gain. But so far, lulu management isn't doing much to help UBS convince investors that it's right.
Yesterday, lulu reported strong sales for its fiscal first quarter, but profit margins eroded significantly, and management warned that both sales and earnings for the current quarter will fall short of Wall Street estimates. Over on Fool.com, my fellow Fool Evan Niu believes that lulu is just lowballing the Street, and will wind up beating expectations with a stick when the Q2 numbers come out. For now, though, the stock's valuation of 47 times earnings argues in favor of taking a cautious stance on this one. In curbing investor enthusiasm, UBS is making the right move today.
Time to sell Cypress?
And finally, we come to Cypress Semi, the subject of a new sell rating at Cantor Fitzgerald. As our friends at StreetInsider.com relate, Cantor is kicking Cypress to the curb over worries that the company's "capacitive" technology is getting disrupted by newer players offering "optical-infrared sensing" technology for smartphone touchscreens.
And while it's true the shares are down 21% year-to-date, Cantor fears they have further to fall if a hoped-for rebound doesn't emerge in the second half of this year. These worries may be overblown, however. In fact, most analysts are expecting Cypress to show a 29% drop in profits this year, with long-term profits growing only 12%. These expectations actually sound quite modest, and given that Cypress shares today trade for only about 10 times trailing free cash flow, 12% growth should be plenty fast to justify the current share price.
Throw in a 3.3% dividend yield for good measure, and Cypress actually looks more like a "buy" than a "sell."
Fool contributor Rich Smith holds no position in any company mentioned. The Motley Fool owns shares of lululemon athletica and Wells Fargo. Motley Fool newsletter services have recommended buying shares of lululemon athletica, Cypress Semiconductor, and Wells Fargo.
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