This series, brought to you by Yahoo! Finance, looks at which upgrades and downgrades make sense, and which ones investors should act on. Today, we’re looking at three headline-driven ratings moves, as Sunedison Inc (NYSE:SUNE)‘s wins the stock an upgrade, while poor earnings reports earn downgrades for Aeropostale Inc (NYSE:ARO) and Pandora Media Inc (NYSE:P). Taking these in order, we begin with…
Sunedison Inc (NYSE:SUNE) is shiny
Silicon-wafer maker Sunedison Inc (NYSE:SUNE) announced plans yesterday to spin off its Sunedison Inc (NYSE:SUNE) Semiconductor business in an IPO slated to take place in early 2014. Hopes that the spinoff will unlock value at the company sent Sunedison Inc (NYSE:SUNE) shares soaring 15% in Thursday trading. This morning, similar hopes have inspired analysts at Needham & Co. to upgrade the shares to “buy,” while establishing an $11 price target on Sunedison Inc (NYSE:SUNE).
Is the upgrade justified? Is the run-up in share price justified? My Foolish colleague Travis Hoium is not convinced that either are. Together with its subsidiary or apart, SunEdison remains a deeply unprofitable and cash-burning business. GAAP losses last year amounted to $167 million. Free cash flow ran negative to the tune of $626 million.
Maybe spinning off its semiconductor division will help fix SunEdison’s problems. Maybe it won’t. All that’s certain at this point is that the company only intends to sell “a minority ownership interest” in SunEdison Semiconductor — and if you ask me, that’s not a big enough change in the business to justify the soaring share price.
Aeropostale Inc (NYSE:ARO) is going out of style (too)
Next up, the trading action in shares of clothier Aeropostale Inc (NYSE:ARO) is looking a lot like what we saw at rival Abercrombie & Fitch yesterday. Just hours apart from each other, the two companies reported weak earnings — $0.14 per share at A&F (half what had been expected); a $0.43-per-share loss at Aeropostale Inc (NYSE:ARO) (likewise short of estimates).
Analysts at Imperial Capital are taking the opportunity to remove their buy rating from Aeropostale Inc (NYSE:ARO) shares, and cutting their price target to $10 per share. It’s not hard to see why. Like Abercrombie, Aeropostale Inc (NYSE:ARO) management failed to provide a cash flow statement along with its earnings release, a document which might have shown that the damage is not quite so severe as it initially appeared. Absent this document, investors are left with no reason to believe otherwise than that the damage is indeed fully as bad as it looks.