Friday’s Top Upgrades (and Downgrades): Renasant Corp. (RNST), Nuance Communications Inc. (NUAN)

Long story short, I see every reason to remain short this stock — and little excuse for going long.

Un-Limited potential
Last but not least, we come to Victoria’s Secret owner Limited Brands, which belied its own company name yesterday with a report of 9% comparable-store sales growth in January. StreetInsider.com points out that the company has shown 5% comps growth over the past three months, which demonstrates that not only are sales growing, but they’re accelerating. Given this bright news, it’s no wonder analyst MKM Partners decided to up its price target on the stock today (to $45). The real question is whether MKM should also have raised its rating on Limited to “buy.” (MKM currently has Limited rated only “neutral.”)

Well? Should it have upgraded?

Maybe, but probably not. Here’s why: Priced just under 20 times earnings, Limited is actually a bit more expensive than it looks. Free cash flow over the past year came to only $668 million, or about 5% below reported GAAP net income. When you compare these numbers to the growth estimates, and dividend promises we have for the stock — 12.5% and 2.1%, respectively — it’s hard to call the shares “cheap.” In fact, I’d even question MKM’s assertion that they’re priced conservatively enough to be worth holding on to at today’s prices.

Far from holding on to the $45 share price level they currently enjoy, and that MKM projects them to retain by year end, I think Limited shares are priced to fall.

Fool contributor Rich Smith has no position in any stocks mentioned. The Motley Fool recommends Nuance Communications. The Motley Fool owns shares of Nuance Communications.

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

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