The Fresh Market Inc (TFM), Guess?, Inc. (GES): Thursday’s Top Upgrades (and Downgrades)

It’s hard to say. At first glance, paying $30 for a stock expected to earn $1.92 at the high end results in a not-too-expensive 15.6 current-year P/E ratio at Guess?, Inc. (NYSE:GES). On the other hand, though, long-term expectations call for the company to continue growing at a much more modest pace — only about 7% annually over the next five years. Even with a hefty 2.8% dividend yield, that sounds pricey.

What may swing the equation in Guess?’ favor is the fact that the company has been doing an excellent job of generating cash from its business lately. Free cash flow for the past 12 months came to $227 million, or 43% more than the company’s $159 million in reported GAAP earnings suggest. On balance, I think the resulting price-to-FCF ratio of 11.5, which is made even cheaper when factoring in the company’s $300 million net-cash position, makes Guess? shares look reasonably priced today — yes, even after the stock’s 12% run-up.

And if Guess? should somehow manage to grow its profits at faster than 7% going forward? Why, then, the stock might even be cheap.

And speaking of cheap…
Finally, we turn to AMC Networks Inc (NASDAQ:AMCX). The stock of the company that makes The Walking Dead is looking quite healthy lately. Its 18.5 P/E ratio is a price that both Mad Men and sane investors can probably agree is reasonable. It’s little wonder, therefore, that this morning, analysts at B. Riley announced they were upgrading the shares to “buy.”

But should we? Buy the stock, that is?

As a fan of the network’s shows, I’m inclined to throw caution to the wind, and go ahead and buy the stock solely on the strength of its product — however, there are still good reasons to be leery of AMC Networks Inc (NASDAQ:AMCX). The company carries a heaping helping of debt, for one thing — $1.7 billion net of cash. Its free cash flow, $237 million for the past year, lags reported net income by about 5%. And of course, AMC Networks Inc (NASDAQ:AMCX) pays its shareholders no dividend.

Long story short, even if AMC Networks Inc (NASDAQ:AMCX) lives up to analyst expectations for 20% annualized profits growth, the stock’s no obvious bargain at today’s prices. Personally, I’d advise letting this one decompose a bit longer. For now, it’s only mostly dead, and still not buried deeply enough to grow into a profitable investment for new buyers.

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

Fool contributor Rich Smith has no position in any stocks mentioned. The Motley Fool recommends AMC Networks, Guess?, The Fresh Market, and Whole Foods Market. The Motley Fool owns shares of Guess? and Whole Foods Market.

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