Goldman rates Sirius 'buy,' Owens & Minor 'sell'
The bank believes high-end consumer spending will remain strong and likes the satellite radio company's stock buyback.
Goldman Sachs (GS) made two important ratings announcements Tuesday morning, and each deserves further investigation. Goldman initiated Sirius XM Radio (SIRI) with a "buy" -- and, something that we see much more rarely, downgraded its rating on Owens & Minor (OMI) to "sell."
Sirius XM Radio:
Sirius serves an affluent market. It offers a luxury service, but in a struggling economy, such high-end expenditures are often the first to go. However, when economies are strong, consumers are willing to pay more for added value services like Sirius offers.
Goldman's decision to initiate SIRI with a "buy" reflects a belief that even if the economy falters, the higher-end consumer will remain strong, and confidence in Sirius's recent decision to repurchase $2 billion worth of stock.
The cat was out of the bag early Monday because the major increase happened before this news became public, but according to our analysis the stock seems to have limited upside. According to Stock Traders Daily's real-time trading report, SIRI faces major resistance just above $3 per share. This number is dynamic and will adjust as the price of the stock adjusts.
Owens & Minor:
Goldman's rating looks like a valuation call because Owens & Minor still expects growth next year; it just doesn't expect it to be as strong as before. Instead of looking for growth above 4%, Owens & Minor is expecting growth between 2% and 4% next year. The company trades with a price-to-earnings multiple over 16, so based on the middle ground growth expectation of 3%, the stock trades at more than five times expected growth rates, and that makes it extremely rich by any stretch of the imagination.
According to Stock Traders Daily's real-time trading report, OMI is already declining towards longer-term support. Additional declines look likely, and significant declines could follow if this support is broken. Typically, investors are willing to pay 2.5 years worth of future growth today. But if OMI is only expected to grow at 3% and its price-to-earnings multiple is currently over 16, fair evaluation might actually be well under $20.
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