However, there are a couple of factors that suggest that just as it’s selling American Eagle Outfitters (NYSE:AEO) too short, Oppenheimer’s overoptimistic about ANN. First and foremost, if Ann Inc (NYSE:ANN) costs a bit less than AE, it lacks AE’s sturdy dividend yield. Second, and perhaps related to the lack of a cash dividend policy, ANN’s looking a bit light in the cash production department.
Free cash flow for the past year was only about $51 million, or about 54% of the net income ANN’s claiming to have “earned.” This works out to a price-to-free cash flow on the stock of about 29, or more than twice as expensive as AE shares look when valued on their ability to produce cash. As a result, given a choice between the two stocks — ANN, which Oppenheimer likes, and AE, which it doesn’t — I think I’m going to have to go with AE as offering the better value.
And now for something completely different
As today’s column winds down, we come to a new potential investment that’s starting to garner some excitement. Caesarea, Israel-based surgical robot-maker Mazor Robotics hasn’t been on the market long. It only went public back in late May . But it’s getting some positive coverage this morning from NYC-based broker WallachBeth Capital.
WallachBeth initiated coverage of Mazor today with a buy rating and an $18 price target. So far, investors don’t seem impressed by the news (selling off the stock to the tune of 3.5%), and I can’t say I blame them.
While billed as a rival to America’s Intuitive Surgical, Inc. (NASDAQ:ISRG), Mazor actually bears closer resemblance to tiny Hansen Medical, Inc. (NASDAQ:HNSN). Lacking profits despite raking in nearly $15 million in revenues last year, Mazor doesn’t generate positive free cash flow like Intuitive Surgical, Inc. (NASDAQ:ISRG) does. Instead, it burns it like Hansen Medical, Inc. (NASDAQ:HNSN) does (albeit more slowly). Last year, negative free cash flows amounted to $2.1 million, which suggests that Wallachbeth’s endorsement may be a bit premature.
On the other hand, though, Mazor does have one thing going for it: It’s improving a lot faster than Hansen has. Cash burn in 2012 dropped pretty dramatically at the Israeli robots firm in comparison to 2011 levels. Meanwhile, capital spending remains minimal, which suggests that if the company can turn even marginally cash flow positive in future years, it should be able to fund its ongoing operations quite nicely, without need for shareholder support in the form of additional stock dilution.
Long story short — while I can’t endorse a cash burner at this early stage, Mazor does show some signs of promise. I wouldn’t buy it right away, but I would keep a close watch on it for signs of improving health.
The article Thursday’s Top Upgrades (and Downgrades) originally appeared on Fool.com.
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