The 24/7 Wall St. Top 11 Analyst Calls of the Week (ALU, CSCO, EM, GPS, HCA, JNPR, MPEL, NFLX, P, S, WEN)

Each morning we cover the upgrades, downgrades, and initiations we see in Wall Street research calls from the analysts.  Many calls offer great insight not found elsewhere, while some calls turn out to just be dead wrong and the become the dubious calls of the week.  There were several very dubious calls this last week which analysts wish they could go back and take the opposite stance.  We also saw some very insightful calls.

This last week’s top research calls seen were in shares of the following: Alcatel-Lucent (NYSE: ALU); Cisco Systems, Inc. (NASDAQ: CSCO); Emdeon Inc. (NYSE: EM); Gap Inc. (NYSE: GPS); HCA Inc. (NYSE: HCA); Juniper Networks, Inc. (NYSE: JNPR); Melco Crown Entertainment Ltd. (NASDAQ: MPEL); Netflix Inc. (NASDAQ: NFLX); Pandora Media, Inc. (NYSE: P); Sprint Nextel Corporation (NYSE: S); The Wendy’s Company (NYSE: WEN).

We have given a summary of each call in this week’s summary. We also included the price action and added in other color on the news if applicable.

Alcatel-Lucent (NYSE: ALU) had nothing short of a horrible week as the market hit the stock on peer weakness and then as its earnings was not up to snuff.  On Friday came a big downgrade.  We reported that it was cut to Sell at S&P Equity Research but it was actually cut to Strong Sell.  Alcatel-Lucent remains one of the better networking and comm-equipment shares in 2011, but the week closed out at $4.05 versus $51.9 the Friday before.

Cisco Systems, Inc. (NASDAQ: CSCO) needs all the help it can get, and a bear turned into a bull.  Goldman Sachs was negative for quite some time on Cisco and was right on the way down.  On Thursday the firm raised its rating to Buy with a $21 price target.  Unfortunately this was  bad week for networking and comm-equipment stocks, but maybe the firm is trying to just hit somewhere close to the bottom rather than predict the absolute bottom as shares were $16.46 the Friday before and closed the week out at $15.97. The Thursday gain did go from $15.69 to $16.01 on the day of the upgrade.

Emdeon Inc. (NYSE: EM) had a strange week. Reports were out that Blackstone may be in talks to buy the company for $3 billion in enterprise value, including its more than $1 billion in debt.  Shares of the provider of revenue and payment cycle management solutions effectively went from $13 to over $16 on the reported buyout talks, but William Blair stepped in on Thursday and cut the rating to Market Perform.  That doesn’t sound as promising as speculative investors might have hoped.

Gap Inc. (NYSE: GPS) has been battered and bruised after its dismal warning killed the stock in recent weeks.  But what has happened is that the cost of cotton has come crashing down and this all bodes well for Gap’s input costs and ultimately its margins.  Jefferies raised the rating to Buy from Hold, but more importantly it took the price target to $25 from $16 in the call.  Maybe the Gap isn’t all “cr@#” after all.

HCA Inc. (NYSE: HCA) had an awful week after its earnings showed a trend that people are having fewer expensive and elective surgeries due to harder times.  This is a recent IPO and when you have a wave of huge underwriters and a huge company that suddenly goes into the confession booth on Wall Street you have to wonder who knew what and when.  Certainly this hasn’t just come up as a surprise overnight.  Goldman Sachs was in the underwriting group and it downgraded shares to Neutral from Buy after the earnings.  Another dubious call, although the firm was far from being alone in its research.  Shares closed on the lows of the week at $26.68 versus a close of $34.61 the prior Friday before.  Don’t just single Goldman Sachs out alone though, Jefferies raised HCA to “Buy” the week before and many of the underwriting firms had positive ratings.  Now it is a busted IPO, so maybe investors should let the rest of the analysts downgrade it and let the dust settle and then consider nibbling for a longer-term position now that the bargain bin has been found.

Juniper Networks, Inc. (NYSE: JNPR) joined in on the negative earnings trends in the field of networking and comm-equipment.  The awful earnings reaction took shares from $31.17 to $24.66 initially, but then it closed down at $23.79 the following day and closed down at $23.39 for the lowest close on Friday.  The analysts really missed this one and the lemmings all downgraded the stock after having mis-guessed that Juniper would not face the same pressures that Cisco has been feeling.  Shares were removed from Conviction Buy List at Goldman Sachs, and we saw downgrades from William Blair, Oppenheimer, ThinkEquity, JPMorgan, Piper Jaffray, and Citigroup.  In short, this was a dubious “top call of the week” as almost no one got it right.  Kudos to Ticonderoga Securities: it downgraded Juniper to Neutral back on April 20 at $39.26.

Melco Crown Entertainment Ltd. (NASDAQ: MPEL) had a down week but its stock has managed to stay over $16 during the malaise in the markets.  Maybe gamblers in Macau don’t care about Boehner and Obama and debt ceiling and budget talks.  The stock was Reiterated as “Buy” at Citigroup but the company has a new street high price target of $19.10 in this call.  Earlier in the week it was BofA/Merrill Lynch that reiterated a “Buy” rating and raised the target to $18.00 per share.  Analysts keep lifting their price target objectives here rather than downgrading the casino on valuation.

Netflix Inc. (NASDAQ: NFLX) had a hard week after earnings were above estimates but on higher subscriber acquisition costs and on some peaking North American trends.  We outlined what it would take to get shares to $400, but many analysts played catch-up and used the weakness as an opportunity to get clients into the stock:

• Reiterated Outperform and raised target to $310 at Credit Suisse;
• Reiterated Sell at Janney Capital;
• Maintained Buy with $300 target at Citigroup;
• Maintained as Buy with $300 target at Canaccord Genuity.

Pandora Media, Inc. (NYSE: P) saw its quiet period end and the crew of analysts just piled in on the stock with almost all positive ratings.  What is interesting is that this did not save the stock, not at all.  Shares went out the prior Friday at $18.03 and closed out the week at $15.09 as it turns out that investors do not want companies as much that lose money and where the increase in revenues and subscribers does not really compress the losses into gains. The ratings were as follows:

• Started as Overweight at JPMorgan;
• Started as Outperform at Wells Fargo;
• Started as Outperform at William Blair;
• Started as Buy at Citigroup;
• Started as Hold at Stifel Nicolaus.

Sprint Nextel Corporation (NYSE: S) was another dubious call where an analyst just found the wrong side of fate.  Sprint’s earnings reaction knocked the you-know-what out of the stock.  On Tuesday came a report that RBC Capital was Raising its rating to “Outperform.”  Then came the news late in the week after it traded a monster 200-million-plus in shares for a drop to $4.34 from $5.16… and shares closed out the week at $4.23.  Our take is that the worst is yet to come unless a huge market rally bails the company out.

The Wendy’s Company (NYSE: WEN) is finding at least some additional love after shedding Arby’s.  Janney Capital initiated coverage of this one with a Buy rating and a $6.50 price target as a turnaround stock. The market kept pressure on the stock and it still closed down for the week at $5.27 versus $5.52 the week before, so maybe the call hasn’t been entirely missed for longer-term investors who prefer to look for patient entry points rather than chasing gainers.

As you can see, there were many gutsy research calls that went against the grain.  There were also some really big blow-ups that may have wrecked some investors and may have wrecked some research analyst careers.

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JON C. OGG