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Activision Blizzard, Inc. (ATVI), McDermott International (MDR): Wednesday’s Top Upgrades (and Downgrades)

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Activision Blizzard, Inc. (NASDAQ:ATVI)This series, brought to you by Yahoo! Finance, looks at which upgrades and downgrades make sense, and which ones investors should act on. Today, our headlines feature downgrades for NYSE-listed McDermott International (NYSE:MDR) and Fossil Group Inc (NASDAQ:FOSL). The news isn’t all bad, though, so let’s start off on a bright note, with a few positive words about…

Activision Blizzard, Inc. (NASDAQ:ATVI)
Activision Blizzard, Inc. (NASDAQ:ATVI) gained a new fan this morning, when analysts at The Benchmark Company initiated coverage with a buy rating and a very precise price target of $20.31 per share. Quoting from the upgrade note, StreetInsider.com has Benchmark lauding Activision Blizzard, Inc. (NASDAQ:ATVI)’s “compelling pipeline of anticipated core/casual games for fiscal ’14.” Benchmark suggests that investors look to buy Activision Blizzard, Inc. (NASDAQ:ATVI) shares below $17 per share, and sees a bottom forming around $16 per share.

That sounds about right to me. Priced below 15 times earnings today, and selling for about 13.5 times free cash flow, Activision Blizzard, Inc. (NASDAQ:ATVI) currently looks overpriced for sub-9% growth and a dividend yield of only 1.1%. However, crediting Activision Blizzard, Inc. (NASDAQ:ATVI) for its sizable cash hoard, and its potential for faster growth by way of reclaiming shares from Viacom, I get a fair value on the stock of just under $16 per share.

Long story short, this stock isn’t a bargain yet, but it’s getting there. Benchmark is right to alert investors to the possibility that Activision will soon become a “buy.”

Fossil gets buried
Now for the bad news. Shares of Fossil Group Inc (NASDAQ:FOSL) were falling today, despite the fact that yesterday the company reported second-quarter earnings of $1.10 per share pro forma, or $0.17 better than analysts had expected.

Fossil Group Inc (NASDAQ:FOSL)’s 3% decline in share price this morning can probably be attributed to the fact that earnings guidance did not measure up to expectations. Predicting that third-quarter pro forma earnings will range between $1.38 and $1.45 per share, Fossil Group Inc (NASDAQ:FOSL)’s guidance fell short of analysts’ hoped-for $1.46 in third-quarter earnings. But it didn’t help matters that Citigroup this morning lowered its rating on the stock.

According to Citigroup, Fossil Group Inc (NASDAQ:FOSL) lacks “positive catalysts” to drive the stock higher. I agree.

Priced at nearly 21 times earnings, expected to grow at less than 14% per year over the next five years, and lacking any dividend, Fossil shares look overpriced for their growth prospects. Free cash flow at the company has historically been strong, but not notably superior to GAAP earnings.

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