Analysts' Downgrades: New massive downgrades on CMG, AMD and SVU

Downgrades were in full force this week as the global economy slowly takes its toll on financial results, often with devastating results for investors.

Supervalue (NYSE:SVU)
SVU was again heavily downgraded by analysts. In July the company’s target price was downgraded by 24 percent along with its credit rating. This time it was downgraded by an additional 16 percent after the company released its second quarter earnings last week.

The grocery retailer’s earnings swung to a loss in the second quarter due to restructuring charges. Excluding the charges the company broke even in the second quarter. Additionally the company’s sales declined to USD 8 billion from 8.4 bn  in the same period last year primarily due to a slew of store closures. The results were negative for the financially troubled company but investors rejoiced as Supervalue confirmed that it was in talks with several parties regarding the company’s strategic options, meaning that the company might be looking to spin off or sell its attractive Save-A-Lot and Jewel Osco assets. Although the company has said that it is trying to turn things around, many investors and analysts believe the company should divest some assets and slim down its operations and they welcome any potential for the company to lower its debt burden.

The company’s financial position has deteriorated rapidly from its peak in 2010 after its string of overpriced acquisitions were written down leaving the company with a large debt load. To put it in perspective, the company has annual sales of around 35 bn but has a market cap. of only 0.5 bn. Analysts now have a target price of 2.63 for the company, a far cry from the target price of 4.92 that analysts had back in July.

AMD Devices (NYSE:AMD)
As I continue to rake the company over the coals, analysts continue to downgrade the company over its poor Q3 results last week and its profit warning the week before. In the warning AMD stated that sales would be down 10 percent, while gross margins would be down 31 percent, much lower than what the company had previously guided. This past week the company came out with its results which showed a USD 150 million loss and confirmed the rumour that the company would lay off 15 percent of its workforce, a rumour which had been circulating ever since the profit warning was issued.

Due to the 16.5 percent target price downgrade for AMD and the general negative sentiment of PC industry, Intel was also downgraded 5 percent. I would argue that despite the slowdown in the PC industry, much of AMD’s problems have been created by the competitive pressure from Intel and AMD's own strategic blunders. To read more on why investors should stay away from AMD and its problems, click here...

Chipotle Mexican Grill (NYSE:CMG)
The darling of the fast food industry, fast growing Chipotle Mexican Grill keeps getting knocked back by analysts and investors as the company keeps  failing to reassure investors that its high growth trajectory will keep going for the foreseeable future . The company which has seen high single digit same restaurant sales along with topline revenue growth of 20%+ in the past few years is facing a slowdown. Although the company reported an 18 percent increase in revenue, and a 37 percent increase in net income, what took the market by surprise was the company’s muted guidance of “flat to low-single digit comparable restaurant sale” for 2013 which pales in comparison with the company’s amazing historical growth.

Although CMG’s growth rate is just a wish for most companies, CMG stock’s high valuation of 50 P/E back in July left little room for upside for the stock. The relatively Q3 4.8 percent same restaurant sales growth spooked investors and analysts alike. Many believe that CMG is finally being impacted by competitive pressure from Taco Bell which was highlighted as Greenlight Capital’s David Einhorn’s reason for shorting the stock.

Due to the disappointing guidance given, analysts lowered their target price for the company by a staggering 16.4 percent, from 377 to 315 while investors punished the stock by 15 percent.

Modern Times Group (STO:MTG-B)
The Nordic entertainment company which operates free and pay for tv channels was the biggest loser of the downgrades last week. MTG-B surprised analysts with weaker than expected EPS and revenues. While the market was expecting EPS of SEK 4.91, the company only delivered 4.64 partly due to market share losses in Norway and Sweden as well as a softer than expected Danish advertising market. As well as the earnings disappointment, MTG's guidance left much to be desired due to the increasing cost of content which would result in margin compression in the near future. Additionally MTG's footprint expansion in emerging markets should also increase short-term pressures.

On the disappointing news, analysts lowered their target price for the company by a whopping 23.6 percent primarily due to the strong reaction from investors which sent the stock down more than 25 percent since the release of the Q3 results.

Other notables:
This week was a big week for downgrades as many companies disappointed which could potentially pave the way for a very weak earnings season. Below are other notables in the week which have been affected by target price downgrades.

For additional details about these stocks, take a look at Saxo Bank’s Equity Research offering here.

You can read about last week's analyst upgrades in Sverrir Sverrison’s article today: Analysts' Upgrades: SNDK & MAT on solid Q3; Sprint's acquisition

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