Priced at 13.5 times earnings, the rocket maker’s not horrendously expensive. But with a projected growth rate of just 7%, and a healthy, but not overly generous, dividend yield of 2.8%, Raytheon Company (NYSE:RTN)’s not obviously cheap, either. Bright and early Monday morning, analysts at ace stock shop Stifel Nicolaus took a look at these numbers and decided they see no compelling reason to buy Raytheon anymore, and downgraded the stock to “hold.”
And honestly, that looks like the right call to me. I still see a lot to like in Raytheon Company (NYSE:RTN)’s business — a successful international arms operation, for example, that outclasses the rest of the industry, and positions Raytheon well to ride out the sequester. But the simple fact is, that after outperforming the rest of the S&P 500 by a good 20 points over the past year, Raytheon stock is no longer cheap. The stock currently trades for 11.4 times free cash flow, which in light of its slow growth rate and modest dividend yield, looks appropriate … or even a bit generous.
Long story short, Stifel Nicolaus was right to recommend buying Raytheon Company (NYSE:RTN) last time. It’s right again today, when it tells us that the stock is no longer cheap enough to be attractive, and issues the appropriate downgrade.
Motley Fool contributor Rich Smith has no position in any stocks mentioned. The Motley Fool owns shares of Microsoft and Raytheon.
The article Monday’s Top Upgrades (and Downgrades) originally appeared on Fool.com and is written by Rich Smith.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.