At 24/7 Wall Street we have been running weekly research screens to scan the brokerage firms we cover for the stocks that are cut to Underperform or Sell ratings. The higher the market drifts, especially after a 30% rise last year by the S&P 500, the more it seems that Sell ratings are hitting the tape. While some are clearly valuation calls, others are for a variety of reasons, including earnings shortfalls and declines in revenue.
More high-profile names hit the screens this week. From mega-cap defense names to a small-cap biotech that was recently championed, not many sectors are being spared the analysts’ whip. We remind readers that we strive to get these downgrades out as soon as possible, since Wall Street firms have been known to be a little negligent about trumpeting downgrades and Sell ratings.
CA Technologies (NASDAQ: CA) was given the cut to Underperform at Cowen. The company initiated the downgrade following discussions with customers and partners that indicate perceptions are deeply entrenched, making new business and bookings growth difficult, and notes the renewal portfolio tailwind is over. The Cowen price target for the stock is now $30. The Thomson/First Call estimate is set at $31.19. CA Technologies closed Thursday at $32.67.
Dynegy Inc. (NYSE: DYN) is moved to a Sell rating at UBS. The company was bankrupt a year ago and faces huge environmental regulations in the state of Illinois on the heels of the company’s attempt to acquire coal assets from Ameren. The company has been out of favor for years and should continue to be. The UBS price objective is $17. The consensus target is $19.38. Dynegy closed Thursday at $22.44.
Galena BioPharma Inc. (NASDAQ: GALE) is a name that had hit our top biotechs under $5 screen. While most of the street is still positive, the marketing of the stock came under heavy scrutiny, forcing the CEO to write a letter to shareholders. Some ill-timed insider selling did not help things. Cantor Fitzgerald moved the stock to a Sell and posted a $2 price target. The consensus target is $7.50. The stock closed Thursday up more than 10% at $3.91.
General Mills Inc. (NYSE: GIS) caught an Underperform rating this week from the analysts at Jefferies. Revenue for the quarter stood at $4.88 billion, which was flat from last year. The company reported that demand for cereals and packaged food had weakened. It also cited unfavorable currency movements that offset increased prices. The decline in customer interest mainly occurred because of customers’ unwillingness to open their wallets for premium product. The company does pay shareholders a 3% dividend. The Jefferies price target is $44, and the consensus clocks in at $51.31. General Mills closed Thursday at $49.78.
Kansas City Southern (NYSE: KSU) got hit by a number of big Wall Street firms, and it was downgraded to Neutral from Outperform at Morgan Stanley. Stifel has had the stock at Sell for some time. The company sold off on news that the lower house in Mexico’s congress had passed legislation that would open up the current Mexican rail system to more competition. Right now, Kansas City Southern de Mexico and Ferromex are the only two companies that have exclusive concessions. The companies do not own the track, but they pay the Mexican government for use of the infrastructure. Kansas City Southern de Mexico has an exclusive concession through 2027. Investors are paid a 1.2% dividend. The Stifel fair value target is $77 as the only out-price target on this Buy-rated stock. The consensus price target is $109.47. The stock closed at $94.23.
Lockheed Martin Corp. (NYSE: LMT) is a Sell-rated stock at UBS. This again is most likely a straight valuation call at UBS. With the stock trading near its 52-week high and the ability to drive earnings appreciably higher, the money plain and simple may have been made on this name. Investors are paid a 3.3% dividend. The UBS price objective is $137, and the consensus target is $159.65. The stock ended Thursday at $164.27.
Microsoft Corp. (NASDAQ: MSFT) is an unusual name to catch an Underperform rating from Merrill Lynch. While the call may be a pure valuation statement, the company will go through an arduous process of shifting power in the CEO office, something that has only happened three times in the history of the software giant. Investors are paid a 3% dividend. The Merrill Lynch target is a benign $35, while the consensus is higher at $38.42. Microsoft closed Thursday at $37.75.
Rubicon Technology Inc. (NASDAQ: RBCN) caught a Sell rating this week at Piper Jaffray. While the company picked up some hype as a possible secondary sapphire play, it posted a $0.22 per share loss for the quarter and guided first-quarter revenues below estimates. The Piper Jaffray price target is $7, and the consensus target is $9.94. Shares closed Thursday at $12.28.
Week after week the hits just keep on coming. Just this week, hedge fund manager David Einhorn cautioned against betting on the extension of a U.S. stock market rally that he said was fueled by conditions that are difficult to sustain. Einhorn is savvy, and he may see a sell-off coming that will be much larger than January’s 6%. We will continue to track Sell ratings and report them as soon as we can.
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