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 include a pair of upgrades for Comcast Corporation (NASDAQ:CMCSA) and Starbucks Corporation (NASDAQ:SBUX). But the news isn’t all good. So before we get to those two, let’s take a quick look at why…
Ascena Retail went into the bargain bin
Does anyone still watch Jim Cramer anymore? Apparently so. Two days ago, the CNBC stock guru told viewers of his Mad Money program to sell Dress Barn operator Ascena Retail Group Inc (NASDAQ:ASNA), citing a steep drop in earnings, and calling the company “too inconsistent” to own. Today, analysts at investment bank FBR Capital are taking Cramer’s advice to heart, and initiating coverage of Ascena themselves — also with a sell rating.
Are they right?
On balance, I’m more inclined to agree with Cramer, and with FBR, on this one than to disagree. But I’m not quite convinced the stock is as bad as they seem to think. On one hand, sure, 25 times earnings seems to be a lot to pay for a company that analysts expect will only grow its earnings at 15% per year over the next five years — and that pays no dividend. On the other hand, though, Ascena Retail Group Inc (NASDAQ:ASNA) boasts strong free cash flow — $175 million produced over the past year, versus only $123 million in reported earnings.
The way I see it, the stock’s better viewed as trading for “17 times free cash flow” than “25 times earnings.” That’s still too much to pay for 15% growth, granted, and so, no, I would not buy it. But Ascena Retail Group Inc (NASDAQ:ASNA)’s a whole lot closer to reasonable, fair valuation than what the analysts are leading you to believe.
Analysts tune into Comcast Corporation (NASDAQ:CMCSA)
Turning the channel to happier news, cable TV conglomerate Comcast Corporation (NASDAQ:CMCSA) announced earnings of $0.65 per share yesterday, beating analyst projections by a couple of cents, and beating on revenues as well. This performance earned the stock a price target hike to $50 from analysts at Nomura this morning, and an upgrade to “outperform” from R.W. Baird.
Nomura calls Comcast Corporation (NASDAQ:CMCSA) the “best-in-class” cable operation, and likes how the firm’s NBCUniversal operations are shaping up. The analyst heaped praise upon Comcast Corporation (NASDAQ:CMCSA) for returning cash to shareholders through dividends and buybacks while simultaneously paying down debt — and I have to admit that I am mightily impressed as well.