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 two new buy ratings for TriQuint Semiconductor (NASDAQ:TQNT) and Nuverra Environmental Solutions Inc (NYSE:NES). But the news isn’t all good, so before we get to those two, let’s find out why one analyst thinks…
Enerplus Corp (USA) (NYSE:ERF) is a minus
Shares of oil and gas exploration and production company Enerplus Corp (USA) (NYSE:ERF) are taking a tumble this morning, leading the market down, and off 4.5% in their own right. For this, you can thank the somewhat less than friendly analysts at RBC Capital, who pulled their outperform rating from the stock this morning, and downgraded the shares to sector perform.
At first glance, you might think this move owed entirely to a typographical error. In the course of making their downgrade, RBC made the curious move of switching around some digits in their price target — which formerly stood at $16.83 per share, and now reads “$16.38.”
That’s hardly the only problem with Enerplus’ numbers, however. For while the shares cost only $15 and change today, suggesting that RBC thinks there’s at least some upside to be had, the cold, hard truth is that Enerplus’ lack of profits and dismal prospects for the future make the contrary more likely.
Unprofitable today, and priced at 19 times what analysts hope Enerplus might earn next year, the stock seems overpriced relative to consensus projections of more than 5% long-term negative growth. The stock pays a nice dividend — 6.7% — but with neither GAAP profits, nor positive free cash flow to support it, it’s hard to see how Enerplus can continue making such rich payouts for long.
Enerplus reported losses of $125 million over the past year, and burned through nearly twice as much cash as it admitted to losing ($244 million). With a record like that, I think a downgrade to only sector perform is still giving the company too much credit.
A new name, and a new buy rating, for Nuverra
Sticking with the energy stocks theme, our first positive rating of the day is Nuverra Environmental Solutions Inc (NYSE:NES) — the company formerly known as Heckmann. Needham & Co. announced that they were beginning coverage on the fracking wastewater company this morning, and Needham likes Nuverra Environmental Solutions Inc (NYSE:NES) quite a lot. Quoted on StreetInsider.com today, the analyst called Nuverra “increasingly well positioned as a comprehensive environmental services provider for the longer-term U.S. shale plays.” Needham also likes the firm’s ability to offer “cradle-to-grave” solutions, and its customer base that is “becoming increasingly sophisticated in responsible waste handling needs.”
That’s all kinds of touchy-feely. So how do Nuverra Environmental Solutions Inc (NYSE:NES)’s numbers look? Well, let’s see here…
According to S&P Capital IQ, Nuverra has a market cap of just over $955 million, but no profits to speak of. It pays no dividend, and carries about $550 million more debt than it has cash on hand. “Nuverra,” “Heckmann” — call it what you like, none of that sounds particularly propitious. One bright spot on the company’s horizon is that Nuverra is generating positive free cash flow. But at just $12.3 million generated over the past year, that still works out to a price to free cash flow ratio of 81 — and an enterprise value to free cash flow well into the triple digits.
Long story short, Needham may like this stock’s prospects — but I do not.