Kansas City Southern (KSU), Bed Bath & Beyond Inc. (BBBY), Synovus Financial Corp. (SNV): Monday’s Market-Moving Downgrades Worth Noting

Another Illogical Call on Valuation

Goldman downgraded Synovus Financial Corp. (NYSE:SNV) to “Sell” on Monday with a $2.50 price target, citing valuation as the primary reason. According to Goldman, Synovus Financial Corp. (NYSE:SNV) has seen an M&A speculative rally, and its earnings and fundamentals don’t support its valuation.

Shares of Synovus Financial Corp. (NYSE:SNV) fell almost 3% on news of this downgrade. But much like Bed Bath & Beyond, I find its valuation-related downgrade hard to assess. Alongside B of A and Citigroup, Synovus Financial Corp. (NYSE:SNV) trades at a fairly significant discount to its $3.32 in book value per share. Therefore, I don’t consider Synovus too expensive, especially considering the financial sector’s strong performance over the last year. In fact, I’d consider Synovus Financial Corp. (NYSE:SNV) one of the cheaper stocks in the space.

Conclusion

Each of these downgrades was made on the basis of valuation. Yet I only identify one of these three stocks trading at levels that exceed its industry averages. For the most part, these calls don’t appear fundamentally warranted.

Investors can use this as a lesson: Seek temporarily weakened stocks that have fallen for the wrong reasons. In the case of Bed Bath & Beyond Inc. (NASDAQ:BBBY) and Synovus Financial Corp. (NYSE:SNV), I would monitor both closely, and watch for signs that their fundamentals are getting stronger.

The article Monday’s Market-Moving Downgrades Worth Noting originally appeared on Fool.com and is written by Brian Nichols.

Brian Nichols has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Brian is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.