One of the most incredible components to the technology revolution is the lightning speed at which data and discovery can change. In other words, what is big and trending today can be quickly replaced and gone tomorrow.
In a new weekly note from the Applied and Emerging Technology team at J.P. Morgan, we discovered an interesting tidbit. Of the 16 stocks they cover in applied technologies, nine are rated Neutral or Underperform, versus only seven that are rated Outperform. For shareholders, it could be high time to review portfolio holdings and see if any of the Underperform-rated stocks are residing in portfolios. Wall Street firms tend to shy away from Sell and Underperform ratings, so the J.P. Morgan team is making a solid statement here.
Here are the five applied technologies stocks rated Underperform now at J.P. Morgan, with some of the firm’s rationale on why they are.
Diebold Inc. (NYSE: DBD) is a leading supplier of security solutions and ATMs for finance and retail outlets. The company gave 2015 earnings guidance last month, and the top end of the $1.75 to $2.05 per share range for the year, was barely in line with Wall Street estimates of $2.02 (see clarification below). While the J.P. Morgan analysts do not appear to be horribly bearish on the company, it is clear from guidance that growth could be tepid, and if Diebold starts missing quarterly numbers, the stock could get hit harder than some expect.
Please note that Diebold itself sent a note on this matter, although this doesn’t change the analyst view from JPMorgan. Diebold’s Corporate Communications said, “Wall Street consensus of $2.02 should compare with our non-GAAP guidance of $1.90 to $2.10, which is much more in line with the street consensus.”
Diebold investors are paid a 3.6% dividend. The J.P. Morgan price target for the stock is $33. The Thomson/First call consensus price target is $36.40. Shares closed trading on Tuesday at $32.16.
FLIR Systems Inc. (NASDAQ: FLIR) is a stock the J.P. Morgan team has been negative on for some time. While the company did top third-quarter earnings estimates, the analysts feel that the stock is fully valued and expect the company to see sluggish product demand in the United States and in Europe, where dollar strength could add to the problem. They also point out that revenue from the Department of Defense appears to be declining, and margins could see pressure.
FLIR investors are paid a 1.3% dividend. The J.P. Morgan price target is $31, and the consensus target is much higher at $38.88. Shares closed trading on Tuesday at $31.31.
Garmin Ltd. (NASDAQ: GRMN) is a global leader in consumer satellite navigation devices, and it recently caught an analyst upgrade, but the J.P. Morgan analysts remain negative on the stock. While they note the company has a solid balance sheet and cash flow, they see free smartphone personal navigation device (PND) apps taking share from traditional PND apps. They also see operating expense reallocations to growth segments taking a toll on margins.
Garmin investors are paid a 3.6% dividend. The J.P. Morgan price target is $48, which is dramatically lower than the consensus target of $60.38. The stock closed Tuesday at $52.86.
iRobot Corp. (NASDAQ: IRBT) is another stock rated Underweight at J.P. Morgan, and it has been for some time. While the stock has come in dramatically from the highs of a year ago, it still trades at sizable multiple and is experiencing increasing competition for floor-cleaning robotic devices. It is also another company that the analysts see as receiving lower orders from the Department of Defense, and they expect that to stay in place through 2015.
The J.P. Morgan price target is $33.50, and the consensus target is posted at a lofty $45.11. Shares closed trading Tuesday at $33.81.
Outerwall Inc. (NASDAQ: OUTR) wraps up the five stocks at J.P. Morgan rated Underperform. The stock hit the wall last week, dropping 20% as the company announced it will be searching for its fourth CEO since 2009. While Outerwall is a leading supplier of automated retail, including Redbox DVD kiosks, the DVD rental market is seen as fully saturated by the analysts, which would indicate growth will be hard to come by going forward. While Redbox is increasing share, the overall DVD market is declining with the growth of streaming from providers like Netflix.
The J.P. Morgan price objective is set at a very low $48, while the consensus target remains much higher at $71.57. The stock closed at $65.05 a share.
Clearly, many of the stocks on the J.P. Morgan list remain quality companies. The bottom line from the analysts’ perspective is most are fully valued and additional growth and revenues for 2015 may be hard to come by. Investors with gains in these companies may want to sell and look for better growth ideas. We featured five stocks Tuesday that beat earnings and raised estimates for 2015 that may be good swap candidates.