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 feature a pair of downgrades for United Parcel Service, Inc. (NYSE:UPS) and Riverbed Technology, Inc. (NASDAQ:RVBD). But the news isn’t all bad.
Suddenly, nobody hates Leap Wireless International, Inc. (NASDAQ:LEAP) anymore AT&T Inc. (NYSE:T)‘s announcement late Friday, that it plans to buy mobile rival Leap Wireless International, Inc. (NASDAQ:LEAP) for $15 a share, spurred a radical rethink among analysts this morning. As Monday dawned, no fewer than five separate analyst houses upgraded their ratings on Leap Wireless International, Inc. (NASDAQ:LEAP), with BTIG, Baird, BMO, and J.P. Morgan all upgrading the shares to various flavors of “neutral,” and Barclays suggesting investors actually “overweight” the stock.
Of the five, Baird’s ratings switcheroo was perhaps the most surprising. Previously positing a mere $3 stock price for Leap Wireless International, Inc. (NASDAQ:LEAP), the analyst now says the stock is worth all $15 that AT&T Inc. (NYSE:T) wants to pay for it. But are these analysts right? Is Leap Wireless International, Inc. (NASDAQ:LEAP) now “safe” to hold?
No, I don’t think so. And I’ll tell you why. Already, Leap Wireless International, Inc. (NASDAQ:LEAP) shares have leapt over the bounds set by AT&T Inc. (NYSE:T)’s buyout offer, and currently trade north of $17 a share. That means investors are betting that either AT&T Inc. (NYSE:T) will be forced (perhaps by shareholder lawsuits) to raise its bid, or that a competing offer (perhaps from T MOBILE US INC (NYSE:TMUS), which bought MetroPCS three months ago) will emerge. Either of these scenarios are possible of course. But what if they don’t happen?
Why, then, investors who follow Wall Street’s advice and hang onto the shares today, instead of taking their winnings and bidding Leap adieu, will be stuck owning an unprofitable telco with $2.6 billion net debt. A telco that might be worth $15 a share if regulators approve AT&T Inc. (NYSE:T)’s purchase, or that might be worth far less if the deal gets KO’ed, and Leap shares plunge back down to their pre-buyout-offer valuation.
Personally, I see far more minuses than pluses in today’s stock price. If I owned Leap, I’d take the money and run.
United Parcel Service, Inc. (NYSE:UPS) and downs
Speaking of stocks to run from, investors are scampering pretty much pell-mell away from shares of United Parcel Service, Inc. (NYSE:UPS) today, as the stock attracts downgrades from each of Raymond James, BB&T, and J.P. Morgan. Last week, as you may recall, a weak guidance announcement from United Parcel Service, Inc. (NYSE:UPS) sent the shares down nearly 6%. Today, they’re off a further 0.5% on news of the downgrades. But are these sell-offs justified?
