Nothing is more annoying than when analysts downgrade a stock they loved previously, after a big decline. Ambiguous advice runs a close second on the annoyance scale.
This week's Value Line report on building materials company Apogee Enterprises (APOG) provided both. Three months ago APOG was not too far from its all-time high. The stock, at just north of $57, carried Value Line's highest rating for "timeliness," their assessment of APOG's expected near-term performance. [1= best 5= worst].
At the same time, the analyst cautioned investors that long-term potential was "unexciting" and that the industry is subject to cyclical swings. Should you have bought for a trade or avoided APOG as too pricey a choice?
Fast forward to Sept. 18, 2017. Instead of the forecasted near-term surge, APOG had retreated by more than 21%. Despite the stock's fall Value Line upped its high-end, 3 to 5-year target price range by $5 a share.
You'd think a better price, on a potentially more valuable stock would be a plus, right? Think again. Inexplicably (to me) Value Line's new rating was reset to neutral.
Here is a clip from the latest full-page report. A different analyst created this quizzical commentary. The title bar and color-code emphasis are mine.
Mr. Seidman knocked the timeliness rank down from strong buy to hold even as he praised APOG's improved longer term appeal.
What is Apogee really worth?
This stock has no truly predictable P/E.
Best entry point valuations (green-starred) have come at a variety of levels. The same could be said for the red-starred "should have sold" moments. Value Line assumes a 2020 to 2022 sustainable P/E multiple of 17x.
They also proceed on the premise that the company's EPS will continue growing steadily. The Yahoo Finance consensus for FY 2019 is $3.93 (fiscal year ends Mar. 2, 2019), a bit higher than Value Line's projection for $3.85.
Taking the lower of those numbers and multiplying by 15 supports a conservative 12 to 18-month target of about $58. That's almost 31% above Monday afternoon's quote. It's also far from an upper limit.
APOG topped out at $61, $54.30 and $61 during each of the years 2015 through 2017 YTD. Revenues and profits are both higher now.
[Note: On Sept. 19th FY 2018, second-quarter profits were announced at $0.75. Management expects GAAP of $3.05 - $3.25 per share and $3.40 - $3.60 in adjusted EPS for the year ending next February 24th].
Option traders might wish to sell some May 2018, expiration date puts at $40 or $45. Premiums are attractive and break-even points drop to well below today's price.
I'd be unequivocally willing to own some shares if put at either of those levels. APOG's hasn't traded below $39.88 since February 2016, when the entire market was down severely.
Lower prices, on a stock you like, are a gift. Why refuse a present?
Buy APOG shares, sell Apogee puts or consider doing both.
This commentary originally appeared on Real Money Pro on Sept. 20. Click here to learn about this dynamic market information service for active traders.
