Noteworthy Downgrades on Thursday: CenturyLink, Inc. (CTL), Ulta Salon, Cosmetics & Fragrance, Inc. (ULTA)

A Speculative Concern or an Outlook Based on Substance?

Edison was a massive high-yield company, trading at multi-year highs when the market closed on Wednesday. But when it reopened on Thursday, the stock began its downtrend, losing 5% from its $15.5 billion market cap. The reason it fell was a downgrade by Jefferies, who cited the risk of regulatory disallowances. This means that the firm expects a hit to the company’s fundamentals as a result of government, specifically the restart San Onofre Unit 2 (which is very important to the company).

The firm believes that its likely that the NRC will find that Edison provided inaccurate or incomplete information regarding the site and that fundamentals could be greatly affected. At this point, this is a speculative call. However, I always worry with calls such as this, and am curious to see if there may be substance to an expectation that no other analyst has considered. As a result, I would not buy, but would follow the story closely to see if the firm is correct in their beliefs.

Conclusion

In a previous article I wrote about analysts “following the leader” and how one upgrade/downgrade usually starts a chain effect that can dictate the trend of a stock. It is good to use this information as part of your research but you must ensure that you are assessing the stock and its valuation with your own due diligence. It is important not to make an emotional decision based on the performance of a stock, and if you refrain from making such a decision then large gains could follow.

The article Noteworthy Downgrades on Thursday originally appeared on Fool.com and is written by Brian Nichols.

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