During earnings season, analysts are hard at work to issue revised outlooks, upgrades, downgrades, etc. While many of these calls will move stocks on the call alone, investors shouldn’t fall victim to buying only because of the upgrade. In this piece, I am assessing three calls to determine whether they are good or bad and if the notes warrant the calls.
Newcastle Investment Corp. (NYSE:NCT)
On Friday, shares of Newcastle Investment significantly outperformed the market with gains of more than 4%. The gains were caused by a reiterated “Buy” rating from UBS, with a $14 price target. Currently, a $14 target would insinuate 40% upside. However, the firm explained its call by describing its 14% one-month loss as unwarranted, saying the loss is due to the concerns of a delayed New Residential spinoff. UBS believes that this delay is due to additional filing requirements associated with the acquisition of HSBC servicing assets.
So basically, UBS claimed that presumed fears of the New Residential spinoff are meaningless. While this may be true, UBS is predicting 40% upside on a stock that has lost 14% from this concern. UBS has already said that it believes New Residential is worth $8 per share and that NCT is a deep value stock.
When you look at the fundamentals, you almost have to agree. The stock is a bit pricey, and it has very little room for margin growth. However, 20% fundamental growth this year is very attractive in this economy. The key is if UBS is right about New Residential. But either way, investors must understand that it is a speculative call, one that is risky.
Six Flags Entertainment Corp (NYSE:SIX)
Credit Suisse initiated coverage on Six Flags with an “Outperform” rating and a price target of $87.00. The stock has seen gains of 60% over the last year and Credit Suisse believes it will continue. According to the firm, “upgraded parks, improved marketing, renewed focus on pricing, operating efficiencies, and a healthier balance sheet” are all among the reasons that the firm is bullish moving forward.
Credit: Six Flags Entertainment Corp (NYSE:SIX)
Personally, I love this call. Not only are the reasons for the bullish call accurate, but I also consider it to be a responsible call from a respected firm. Far too often analysts make crazy calls for gains of 40%, 60%, even 100%, and often they are trying to make headlines, following the lead of another analyst, or trying to move a stock. Looking at Six Flags Entertainment Corp (NYSE:SIX), a 22% premium looks fair based on its current valuation compared to fundamentals and the factors noted by the analyst. I say it was a great call!