Tuesday’s Top Upgrades (and Downgrades): Walgreen Company (WAG), Cubic Corporation (CUB)

Cubic no longer deserves a “buy” rating, and Benchmark is right to downgrade it. In fact, the analyst probably should consider going a step further, and downgrading all the way to “sell.”

Dawson — can you dig it?
Last but not least, we get to end today’s column on a bright note — and a hike in target price for oil diviner Dawson Geophysical. Dawson reported blowout earnings last week, sending the shares up 12% in a day. The rally continued on the other side of the weekend yesterday, and today… Dawson shares are on the march once again.

The catalyst this time is a big bump in Wunderlich’s target for where Dawson shares will be trading over the next 12 months. The analysts says Dawson shares, currently sitting just shy of $32, could rise to $38 over the course of the year, adding another 20% profit onto all the profits shareholders have already reaped over the past few trading days.

If Wunderlich’s right, that means there’s still time to buy Dawson shares and get in on the profits. Problem is, though… Wunderlich is not right. Dawson’s reaped some impressive gains, true, but as of this moment, the shares finally look appropriately priced.

Here’s how we reach that conclusion: Dawson generated $22.1 million in free cash flow over the past year. Credit the company for its cash reserves, and that gives the stock an enterprise value-to-free cash flow ratio of almost exactly 10 — which is in turn almost exactly the “right” number for a stock that Wall Street has pegged for 10% long-term earnings growth. So best case, the shares are fairly priced today, and unlikely to rise to Wunderlich’s predicted $38 target.

Worst case, the stock’s 23.4 “P/E” ratio suggests the shares are already over-valued… but we won’t go there. Suffice it to say that the stock’s not as undervalued as Wunderlich says it is, and therefore doesn’t deserve the higher price target, and we’ll leave it there for now.

Fool contributor Rich Smith has no position in any stocks mentioned. The Motley Fool recommends Cubic and Dawson Geophysical Company. The Motley Fool owns shares of Dawson Geophysical Company.

The article Tuesday’s Top Upgrades (and Downgrades) originally appeared on Fool.com and is written by Rich Smith.

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