Monday’s Top Upgrades (and Downgrades): Whole Foods Market, Inc. (WFM), Under Armour Inc (UA)

Down to the Finish
Finally — and appropriately — let’s finish up with Finish Line, easily the worst-faring stock on today’s list as it gets hit with a downgrade to underperform by the analysts at Sterne Agee, and sees its stock fall more than 4% in response.

Sterne’s worried that Finish Line is “losing share to Foot Locker, Inc. (NYSE:FL),” you see. The analyst’s also decidedly unimpressed with Finish Line’s decision to open stores-within-stores at Macy’s, Inc. (NYSE:M) department stores, and warns that this move “will likely harm the Finish Line brand identity.” Add in expected costs growth as Finish Line revamps its digital store, and Sterne sees earnings coming in lower than expected both this year and next — $1.41 and $1.55 a share, respectively.

These numbers are considerably worse than the $1.48 and $1.63 that most folks on Wall Street were expecting, which explains why folks are fleeing Finish Line stock today. Finish Line looks fairly priced at its current valuation of 12 times earnings and an 11% growth rate (with a 1.5% dividend to make up the difference), after all. If the valuation’s going to rise to 13 times earnings later this year, though, then that’s a bit iffier. Plus, Finish Line’s looking a lot less healthy on cash production. If the company reported “earning” $79 million last year, it only generated real cash profits of about $11 million.

Long story short, although Finish Line is technically the “cheapest” stock on today’s list, it’s not cheap enough to buy — and won’t be. Not until it gets its costs under control, and starts generating more cash.

Fool contributor Rich Smith has no position in any stocks mentioned. The Motley Fool recommends Under Armour and Whole Foods Market (NASDAQ:WFM). The Motley Fool owns shares of Under Armour and Whole Foods Market.

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