This series, brought to you by Yahoo! Finance, looks at which upgrades and downgrades make sense, and which ones investors should act on. Today, our headlines include upgrades for both Con-way Inc (NYSE:CNW) and Beazer Homes USA, Inc. (NYSE:BZH). But the news isn’t all good, so before we get to those two, let’s take a quick look at why…
That seems prudent. After all, Interactive Intelligence Group Inc (NASDAQ:ININ) shares now sell for a lofty 475 times earnings. To put that another way, if profits were to remain at today’s levels, and not grow at all, you could buy a share today and not make back your investment for… 475 years. Even with recent medical advances in human lifespan, that seems an imprudent investment plan.
Granted, most analysts do think Interactive Intelligence’s profits will grow — but only at about 15% per year over the next five years. That growth rate moves Interactive Intelligence Group Inc (NASDAQ:ININ)’s share price from the realm of the imprudent, to that of the fantastical.
Honestly, the only question I have for Northland today is why they’re stopping at a downgrade to “market perform.” At these prices, I’m about as certain as I can be that this stock will in fact underperform the market from here on out.
Can Con-way hit the highway?
I’m more intrigued by our second rating of the day, BB&T Capital’s upgrade of trucker Con-way Inc (NYSE:CNW).
BB&T is only upping the stock to hold, from a previous rating of underweight. But with the stock costing 23 times earnings, expected to grow earnings at nearly 19% annually, and paying a 1.1% dividend, Con-way Inc (NYSE:CNW) actually looks to me like one of the less egregiously overpriced stocks on the market today. It’s also generating positive free cash flow — a fact not every trucker in the country can claim these days.
That being said, the levels of free cash that Con-way Inc (NYSE:CNW) is churning out still remain a bit low for my taste — about $25 million over the past year, versus reported GAAP net income of $93 million.
When you get right down to it, Con-way Inc (NYSE:CNW) may be one of the better trucking companies out there, but that still doesn’t make it a good stock to buy.
Bummed about Beazer
Sadly, our third stock today is yet another story of disappointment, too-high expectations, and too little opportunity for profit: Beazer Homes USA, Inc. (NYSE:BZH).
This morning, analysts at CRT Capital upgraded shares of Beazer Homes USA, Inc. (NYSE:BZH) to buy, and set a $29 price target on the stock. Try as I might, though, I just don’t see how Beazer Homes USA, Inc. (NYSE:BZH) shares can get there.
The company’s not profitable. Beazer lost $146 million over the past 12 months. It’s not generating cash. Instead, Beazer Homes USA, Inc. (NYSE:BZH) burned through nearly $26 million over the same period. Beazer also has a weak balance sheet, burdened with more than $1 billion in net debt. And to top it all off, Beazer Homes USA, Inc. (NYSE:BZH) isn’t even growing all that fast. Analysts have the company pegged for a 4% average growth rate over the next five years.
Sequoias grow faster than that.
The article Thursday’s Top Upgrades (and Downgrades) originally appeared on Fool.com is written by Rich Smith.
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