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 sell ratings on a pair of big health care companies — Intuitive Surgical, Inc. (NASDAQ:ISRG) and AstraZeneca plc (ADR) (NYSE:AZN), balanced by … A big buy recommendation for BlackBerry Last night’s revelation that Microsoft Corporation (NASDAQ:MSFT) was willing to pay big bucks to acquire cash-burning Nokia Corporation (ADR) (NYSE:NOK) had an unexpected result of making rival smartphone maker BlackBerry Ltd (NASDAQ:BBRY) seem more attractive this morning.
According to StreetInsider.com, Merrill Lynch is warning that the combination of Nokia Corporation (ADR) (NYSE:NOK)’s money-losing smartphone business with Microsoft Corporation (NASDAQ:MSFT)’s ample cash coffers is “mostly negative” for companies that compete with Nokia Corporation (ADR) (NYSE:NOK)– like BlackBerry Ltd (NASDAQ:BBRY). Regardless, StreetInsider says that as of Tuesday, a research shop by the name of “Makor” has decided to initiate coverage of BlackBerry Ltd (NASDAQ:BBRY) not with the logical “sell” or “neutral” ratings, but instead with a “buy.”
Makor says BlackBerry Ltd (NASDAQ:BBRY) shares, selling for $10 and change today, are destined to hit $14.60 within a year — a 41% jump — and investors are leaping aboard, as BlackBerry Ltd (NASDAQ:BBRY) rises 2.4% in early Tuesday trading. But is that the right move?
There may be something to the idea that, if Microsoft Corporation (NASDAQ:MSFT) will shell out $7.2 billion to buy a cash-burning Nokia Corporation (ADR) (NYSE:NOK) cell phone division, it follows that someone else might spend even more money to buy unprofitable — but free cash flow-positive — BlackBerry Ltd (NASDAQ:BBRY). However… who?
I honestly don’t see any buyers on the horizon for BlackBerry. And while the prospect of buying a free cash flow-stream of $1.9 billion annually — for a market cap less than three times that sum — is certainly intriguing, the fact remains that BlackBerry’s profits are expected to shrink 6% per year over the next five years, so the free cash flow number is likely to shrink as well. Time may be running out for BlackBerry to find a suitor.
Is Intuitive Surgical, Inc. (NASDAQ:ISRG) crashing? Switching tracks now to examine the day’s bad news, StreetInsider has Chicago-based First Analysis Securities downgrading robotic surgery specialist Intuitive Surgical, Inc. (NASDAQ:ISRG) to an “underweight” rating, which news may explain why the stock is trading down slightly.
The stock hasn’t really recovered from its big crash back in July, when Intuitive first warned investors to expect weak earnings — then missed analyst estimates just a couple weeks later.
Yet even so, still trading at 22 times earnings, First Analysis has its doubts that Intuitive Surgical, Inc. (NASDAQ:ISRG) stock is a bargain. Free cash flow at the firm — $758 million over the past 12 months — is still running comfortably ahead of reported GAAP earnings ($706 million). Yet, expectations for long-term earnings growth have sunk into the mid-to-low teens. As a result, the stock doesn’t look particularly attractive even at its price-to-free cash flow ratio of 20, or its enterprise value-to-FCF ratio of 18, either.