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
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

The 10 Countries with the Highest Suicide Rates

The 10 Most Technologically Advanced Countries in the World

The 10 Safest Countries in the World to Live in Peace

The 10 Top Selling Smartphones in the World 2014

The 12 Biggest Shopping Centers in the World

The 10 Friendliest Countries in the World

Qihoo 360 Technology Co Ltd (QIHU), Actavis plc (ACT), Yahoo! Inc. (YHOO) Among 20 Long Ideas from Sohn Canada

The 10 Laziest Countries in the World

The 10 Most Polluted Countries in the World

The 10 Most Dangerous Cities in America 2014

The Top 10 Gold Producing Countries in the World

The 10 Tallest Buildings in the World

The 10 Richest Stand Up Comedians in the World

The 10 Fattest Countries in the World

The 5 Best Summer Jobs for Teens

The 10 Most Religious Countries in the World Keeping the Faith

The 10 Most Educated Countries in the World

The 10 Most Popular Cell Phones in the World

The 10 Drunkest Countries in the World

The 10 Most Expensive Private Schools in the World

The 10 Smallest Countries in the World

Walking Dead Season 5 Spoilers You’ll Wish You Didn’t Know

The 10 Poorest Countries in the World

The 10 Greenest Countries in the World

The Top 10 Countries with the Highest Population in the World

The 10 Most Visited Countries in the World

The Top 10 Star Wars Characters in the Iconic Series

The 10 Most Expensive Android Phones in the World

5 Reasons Why The Illuminati Is Real and a Threat to Society

The 6 Scariest Halloween Costumes Ever Screamed At

The 4 Biggest Hedge Fund Managers in the World Today

The 15 Most Densely Populated Countries in the World

The 10 Biggest Tea Drinking Countries in the World

Top 6 Ways to Improve Your Checkout Process and Close Sales

The 5 Most Profitable Online Businesses You Can Start Today

The 20 Most Profitable Hospitals in the US

The 5 Most Profitable Home Businesses to Start

The 7 Teams that Will Win the Stanley Cup in 2015

The Top 10 Most Expensive Digital Cameras to Snap Stunning Shots With

The 10 Highest Quality Fast Food Restaurants In America Today

The 8 Best Halloween Decorating Ideas to Spook Up Your House

10 Marvel Women that Should Get a Movie Right Now

The 20 Best Remixes of Popular Songs that Will Make You Forget the Originals

7 Most Expensive Cities in the World

5 Least Expensive Cities in the World

10 Celebrities Who Believe In Scientology

10 High Margin Food Products to Build a Business Around

The 10 Most Expensive Clothing Stores in the United States to Get Decked Out At

The 5 Biggest Kickstarter Scams That Swindled Backers’ Donations

The 10 Most Expensive Boarding Schools 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 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!