Comcast Corporation (CMCSA), Starbucks Corporation (SBUX): Thursday’s Top Upgrades (and Downgrades)

Paying out a 1.8% dividend, and growing earnings at north of 17% per year (per analyst estimates), Comcast Corporation (NASDAQ:CMCSA) shares look fairly priced at today’s valuation of 19 times earnings. Free cash flow at the firm is strong, with $7.3 billion in trailing FCF exceeding the “net income” Comcast Corporation (NASDAQ:CMCSA) reports on its income statement by more than 7%.

The one thing that worries me about the stock is its massive debt load — $42.5 billion net of cash. But as Nomura says, the company’s working on paying that down. So long as it keeps doing that, I think Comcast shareholders will do fine.

Coffee’s still on
And finally, we come to Starbucks Corporation (NASDAQ:SBUX) (again). Earlier this week, I laid out the reasons that I prefer Starbucks Corporation (NASDAQ:SBUX) stock over that of rival Dunkin’ Brands — but still thought the stock too richly priced to buy. This morning, analysts at William Blair seconded the emotion, but not the caution. Upgrading Starbucks Corporation (NASDAQ:SBUX) shares to “outperform,” Blair slapped a new price target of $85 on the shares, increasing its estimated valuation by nearly 40%.

Which seems a bit aggressive.

Free cash flow doesn’t appear to be a problem at Starbucks Corporation (NASDAQ:SBUX). Although the company has yet to release its cash flow figures for the most recent quarter, as of three months ago, we know the company was still generating real cash profits at a rate almost identical to that at which it recorded GAAP net income. But this still leaves the stock trading for 34.1 times earnings today, and that’s pretty rich for a stock yielding only 1.1% on its dividend, and expected to produce just-under-20% annual earnings growth.

Long story short, Starbucks Corporation (NASDAQ:SBUX) is a great business, and growing just fine. The problem, as all too often happens in an overheated market such as the one we see today, is that investors have simply gotten carried away with the stock’s valuation, and are paying too much for Starbucks. William Blair’s endorsement today isn’t going to do anything to rectify that problem.

Fool contributor Rich Smith has no position in any stocks mentioned. The Motley Fool recommends Ascena Retail Group (NASDAQ:ASNA) and Starbucks. The Motley Fool owns shares of Starbucks.

The article Thursday’s Top Upgrades (and Downgrades) originally appeared on Fool.com is written by Rich Smith.

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