Big Wall Street Firms Slap the Sell Rating on High-Profile Stocks

Both Merrill Lynch and UBS have added stocks to Sell to their recent research reports. Again, for frustrated investors it sometimes seems like a cover-your-behind act, but more and more, big Wall Street firms are trying to stay ahead of the curve, not behind.

Here are new Sell ratings on stocks from Merrill Lynch and UBS.

Clorox Co. (NYSE: CLX) leads off the hit list at Merrill Lynch. Disappointing earnings and a very tepid outlook for 2014 contributed to the new rating. Investors in the stock are paid a solid 3.3% dividend. That is not enough for Merrill Lynch, which cut its price target from $93 to $89. That is still above where it is trading. The Thomson/First Call consensus target is $88.50. Clorox closed Wednesday at $86.54.

Mallinckrodt PLC (NYSE: MNK) just made a big acquisition, and the team at UBS said time to Sell. While they expect the recent purchase of Cadence Pharmaceutical to be accretive, they also think that Mallinckrodt overpaid. They do not EVER see how the company gets paid back with the $1.3 billion price tag. The UBS price target for the stock is a very low $43, and the consensus target is $58. The stock closed Wednesday at $66.23.

Republic Airways Holdings Inc. (NASDAQ: RJET) gets the nod as a Sell at Merrill Lynch. Bad weather, bad earnings and a bad outlook for 2014 all contribute to the downgrade. New pilot rules are also expected to weigh heavier on regional airlines. The Merrill Lynch price target goes from $11 to $9. The consensus target is $12.92. Republic closed Wednesday at $8.97.

Safeway Inc. (NYSE: SWY) is cut to a Sell at UBS. Safeway reported mixed results for the third quarter. First, there was a 1.1% increase in sales to $8.6 billion, compared to $8.5 billion in the third quarter of last year. Second, earnings per share slipped 58% to $0.27. The gross profit dipped by 36 basis points to 25.8%, while same-store sales grew by 1.9%. The company’s latest quarterly performance should be a worrying sign for investors. The outlook for the next year as portrayed by the company looks rather dim, as the management has revised its earnings downward. Investors are paid a 2.5% dividend. UBS cuts its price target from $29 to $27. The consensus is at $34.06. Safeway closed Wednesday at $32.72.

Senior Housing Properties Trust (NYSE: SNH) is a high dividend real estate investment trust that catches a Sell rating downgrade at UBS. The firm believes the REIT’s $1.1 billion acquisition of a Boston life science complex highlights the issue with its external management structure whose interests are in conflict with shareholders. The analyst said the deal increases the company’s size by 20% but fund from operations accretion is only 2% to 3%, assuming debt funding of 75% at a 3% rate. UBS cuts the price target from $22 to $19. The consensus target is $21.36. Investors are paid a big 7.5% distribution, but that could be cut as well.

SkyWest Inc. (NASDAQ: SKYW) is another regional airline that Merrill Lynch is lowering to a Sell. The same essential issues they do not like at Republic are in play here. The stock has been hit hard recently as the company has seen two negative earnings revisions in the past few weeks, and its current year earnings consensus has moved lower over the past 30 days. Merrill Lynch drops the price target from $12 to $11. The consensus is at $14.41. The stock closed Wednesday at $12.05.

Sprint Corp. (NYSE: S) is another high-profile name to get a Sell rating from Merrill Lynch. The 58,000 contract subscribers Sprint managed to add in the fourth quarter badly lags the numbers its competitors put up during the same period: 780,000 for AT&T, 824,000 for Verizon Wireless and 869,000 by T-Mobile. Most of Wall Street is starting to think the stock is fully valued. The Merrill Lynch price target is just $5. The consensus is at $7.28. Sprint closed Wednesday at $8.07.

When big Wall Street firms cut a stock to Sell, some of their clients can be perturbed when they own the stock. However, for other clients that do not own the stock, it can be a clear warning to stay away, at least until the thesis or story has changed and improved. Of course it always helps when the Sell rating is put on before the stock is cut in half.