Iron Mountain Incorporated (IRM), Ciena Corporation (CIEN): Friday’s Top Upgrades (and Downgrades)

The shares are down more than 15% as of this writing, and it’s not helping matters much that analysts at Stifel Nicolaus just pulled their buy rating on the stock. But is this an overreaction?

No, I don’t think so. Let’s assume the worst-case scenario (in investors’ view, apparently), that Iron Mountain gets stuck operating as an ordinary company and not a REIT. In that case, what we’re looking at here is a stock selling for 37 times earnings, yet growing at only 13% — hardly a value proposition.

On the plus side, now, Iron Mountain does generate a mountain of cash from its business — about $184 million over the past year, or 35% more than its reported “GAAP” income. This, however, only gets the price-to-free cash flow ratio down to about 30, which still seems quite high for a projected 13% grower.

Result: I don’t know if Iron Mountain Incorporated (NYSE:IRM) would magically become a great investment if it were to convert itself into a REIT. I do know that as-is, as an ordinary profit-making venture, I wouldn’t pay this price to own Iron Mountain Incorporated (NYSE:IRM).

A poor prognosis for Insulet
Our final rating, and second downgrade of the day, is an even easier call. Here, we see Wunderlich Securities pulling its “buy” rating on Insulet Corporation. Investors aren’t responding much to the news — the contrary, actually, because they’re bidding the shares up even more than the rest of the Nasdaq is rising — but to my Foolish eye, Wunderlich’s still making the right call in downgrading.

Although growing smartly — Yahoo! Finance has the stock increasing earnings at a 26% annualized rate over the next five years — Insulet remains a deeply unprofitable operation, losing $48 million last year, and burning nearly $32 million in negative free cash flow.

According to Wunderlich, the stock’s only worth $28, and that explains the downgrade. Personally, though, I have to wonder whether investors might not be better off just selling an unprofitable, cash-burning company — no matter the growth rate.

Fool contributor Rich Smith has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

The article Friday’s Top Upgrades (and Downgrades) originally appeared on Fool.com.

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