Wednesday’s Top Upgrades (and Downgrades): Dicks Sporting Goods Inc (DKS), Dreamworks Animation Skg Inc (DWA), Riverbed Technology, Inc. (RVBD)

Page 1 of 2

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 upgrades for Dicks Sporting Goods Inc (NYSE:DKS) and Dreamworks Animation Skg Inc (NASDAQ:DWA). But it’s not all good news, so let’s start off with one analyst who thinks that…

Riverbed is a dry hole
In a (very) delayed reaction to Riverbed Technology, Inc. (NASDAQ:RVBD)‘s underwhelming Q4 earnings report ($0.29 per share, in line with analyst estimates), analyst Wunderlich Securities announced this morning that it’s cutting its price target on the tech star to $19 per share. Mind you, Wunderlich still likes the stock and recommends buying it. It just doesn’t think Riverbed Technology, Inc. (NASDAQ:RVBD) is going up as much in share price as it once did.

Dicks Sporting Goods Inc (NYSE:DKS)But that’s OK. In fact, with Riverbed Technology, Inc. (NASDAQ:RVBD) shares currently costing only $15 and change, a move to $19 is more than OK — it would be about a 22.5% gain in value from today’s prices. What’s more, I think such a move is achievable.

After all, with free cash flow four times as strong as its reported earnings, Riverbed Technology, Inc. (NASDAQ:RVBD) shares today only cost about 12x free cash flow — roughly equal to the stock’s forward earnings multiple. With long-term profit growth still projected to average 22.5% annually over the next five years, the stock’s not expensive at all at today’s prices. Fact is, even after Riverbed Technology, Inc. (NASDAQ:RVBD) reaches Wunderlich’s new, lowered price target, I think it will still have room to run higher.

Dick’s dodges market downturn
Better news greeted shareholders of Dicks Sporting Goods Inc (NYSE:DKS) this morning, when they awoke to find their share upgraded to buy by investment banker Monness, Crespi, Hardt. Indeed, the $61 target price Monness now ascribes to Dick’s suggests even greater upside than Wunderlich posited for Riverbed — a potential 28% gain from today’s prices.

There’s just one problem with Monness’s projection, however. It’s wrong.

Priced at 22 times earnings already, and projected to grow these earnings at 15.5% annually over the next five years, Dicks Sporting Goods Inc (NYSE:DKS) looks expensive on its face. Drill down into the firm’s cash flow statement, though, and you’ll notice the stock is actually even more expensive than it looks. With trailing free cash flow of only $219 million, Dick’s only generates about $0.75 in real cash profit for every $1 it reports as “net income” under GAAP. As a result, a stock that looks expensive at a “22 P/E” looks positively overpriced once you realize that it costs nearly 27x free cash flow.

Result: Even Dicks Sporting Goods Inc (NYSE:DKS) modest 1% dividend yield isn’t enough to move the valuation needle on this stock. A growth of 15.5% simply isn’t fast enough to justify a 27x multiple on the stock, and Dicks Sporting Goods Inc (NYSE:DKS) is destined to fall.

Page 1 of 2

Biotech Insider Alert - $6 Stock To Hit $40

$200 Million Dollar Healthcare Hedge Fund's #1 Best Idea Right Now

The best healthcare hedge fund out there right now is one of the largest shareholders in this biotech stock. The fund returned more than 20% in each of the last 2 years with a virtually fully hedged portfolio, and it's sending out a BUY signal on this biotech stock. Get your FREE REPORT today (retail value of $300)

This is a FREE report from Insider Monkey. Credit Card is NOT required.
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The Best Romance Movies of all Time

The Most Wanted Drug Lords

The Oldest Money Managers

The Greatest Directors in the World

Largest Animals in the World

World’s Most Expensive Desserts

Best Selling Comic Books of All Time

A-list Actors who Sabotaged Their Career

Rappers With a College Degree

The Best Jazz Albums of all Time

The Most Influential Jazz Musicians

The World’s Most Famous Photographers

The Best Oscar-Winning Songs

Most Influential Choreographers Ever

Most Expensive Department Stores in the World

The Most Expensive Stolen Paintings in the World

The World’s Most Expensive Teas

Top Oscar Record Holders

The Most Expensive Flowers in the World

Countries With a Booming Film Industry

Most Expensive Cupcakes in the World

Uncommon European Escapes

The Most Stolen Artists in History

Best Travel Destinations in Australia

World’s Most Expensive Musical Instruments

World’s Most Famous Animals

Most Expensive Cakes in the World

Most Expensive Kosher Champagne in the World

Most Expensive Kosher Wine in the World

The Most Surprisingly Dark Fairy Tales

Most Popular Travel Destinations in Asia

The 10 Most Expensive Dresses Ever Worn to the Oscars

World’s Most Visited Art Museums

Best Countries for Photographers to Work in

Best Paid Jobs in the Film Industry

The Most Renowned Recovered Paintings Ever

Child Stars That Turned out Just Fine

Books That Were Banned in the Past Century

World’s Richest Dancers

Best Remedies against Bad Breath

Foods That Improve Your Skin Texture

Best-Selling Children’s Books of all Time

Foods That Boost Your Libido

Best-Selling Books of all Time

The Most Expensive Academy Awards Jewelry in History

Most Expensive Japanese Restaurant In New York City

The Best B-Boy Movies

Most Awesome Hip Hop Documentaries

Foods That Stain Your Teeth

Richest Doctors in the World

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 129% in 2.5 years!! Wondering How?

Download a complete edition of our newsletter for free!