Coming out of second quarter earnings season, Wall Street analysts have downgraded several notable stocks. These deductions are due to everything from overvaluation and profitability concerns to overheated share prices and rising competition.
Stock upgrades and downgrades can help investors better understand the forces impacting a company’s share price. Also, they shed light on sentiment toward a particular security and expectations for a stock’s future direction. The comments explaining the reasons for a downgrade are often more valuable than the actual rating and price target placed on a particular stock.
As the market struggles to find its footing leading into the fall, we offer a look at some recent analyst downgrades of three stocks that Wall Street is rethinking.
Suncor Energy (SU)
The downgraded price target is in line with the median projection of 18 professional analysts who cover this Canadian energy producer. The latest downgrade comes as Suncor continues to struggle with a litany of problems.
SU recently reported its Q2 net income declined 53% from a year earlier to $1.88 billion. The poor results come after the oil company endured a high-profile cyber attack in June of this year. Unfortunately, that temporarily crippled its network of retail gas stations.
Also, Suncor said it took a $275 million restructuring charge in Q2 related to 1,500 job cuts it had announced a few months ago. The company has also been fending off activist investor Elliott Management and appointed new CEO Rich Kruger in February.
The group cut its rating on the stock to “neutral” or “hold” from “overweight” or “buy” previously. JPM also trimmed its price target on ORCL stock to $100 from $112. They specifically indicated that shares are overvalued relative to the company’s poor financial results.
The downgrades resulted when Oracle’s stock fell 10% after the company issued subpar financial results and provided weak forward guidance. The company announced earnings per share (EPS) of $1.19 compared to $1.15 that had been forecast on Wall Street. Revenue in the quarter totaled $12.45 billion versus the analysts’ expectation of $12.47 billion.
Looking forward, Oracle anticipates $1.30 to $1.34 per share and 5% to 7% revenue growth in the current third quarter. That was below consensus forecasts.
Despite the Q2 results and analyst downgrades, ORCL stock is up 63% over the last 12 months.
The downgrades come amid price cut concerns on Tesla vehicles that could hurt profitability, and after its stock enjoyed a huge run this year, rising 145% since January. Trading at 75 times future earnings, analysts worry that the stock is overheated.
Goldman Sachs analyst Mark Delaney cited these reasons when he downgraded TSLA stock to a “neutral,” or “hold” rating, from a previous “buy” rating. Delaney feels that price cuts and discounts offered on Tesla’s EVs will likely weigh on the company’s future gross margins.
In July, Tesla reported lower Q2 margins due to price cuts and other incentives offered on its vehicles. Also, Tesla executives warned on an earnings call that production at its plants would slow in Q3 due to shutdowns for maintenance improvements.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines