Thursday’s Top Upgrades (and Downgrades): NetSpend Holdings Inc (NTSP) and More

Enervating NVIDIA
And finally, we come to our featured downgrade of the day: NVIDIA. StreetInsider.com reports that the semiconductor maker beat analyst estimates soundly yesterday, reporting $0.35 per share in fiscal Q4 2013 profit versus estimates of just $0.30, and beating on revenue as well. The problem here is that when guiding on fiscal Q1 2014 revenues (that’s this current calendar quarter, by the way), NVIDIA says it is looking for only about $940 million — far below the $1.07 billion Wall Street was projecting.

Citing a litany of complaints that begin with the weak guidance (but don’t end there), investment banker Needham downgraded NVIDIA shares to “hold” this morning. According to the analyst, “lack of meaningful Tegra growth,” plus “limited traction in smartphones, lackluster sell-through of MS Surface Tablet RT tablets, and share loss to QCOM in Android-based tablets” all add up to a prediction that this stock will “trade flat for the foreseeable future.”

And Needham may be right about that. Based on the company’s most recent earnings, NVIDIA shares now cost about 13.7 times trailing earnings. That’s right about what you’d expect to pay for a projected 11% long-term grower with a 2.4% dividend yield like NVIDIA.

Granted, the company has a lot of cash on its balance sheet — $3.4 billion — almost no debt at all, and superb free cash flow. (All these are reasons why I own NVIDIA myself.) But if the company can’t put that cash to effective use to grow earnings, NVIDIA stock could indeed remain stuck in neutral for some time to come.

Motley Fool contributor Rich Smith owns shares of NVIDIA. The Motley Fool recommends NVIDIA and Whole Foods Market (NASDAQ:WFM). The Motley Fool owns shares of Whole Foods Market.

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

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