LeapFrog (LF)

[rayank]

LF: "Time to take a "Leap" of faith?

Of course, if it's growth you seek, you need look no further than one of the stocks Wall Street is down grading today to find it. Earlier this week, games maker LeapFrog enterprises beat earnings estimates soundly with a third-quarter report featuring $0.38 per share in profits -- $0.06 better than Wall Street had anticipated. Projections for the future likewise outpaced expectations, with LeapFrog predicting it will earn at least $0.36 per share this year, and perhaps as much as $0.46.

Regardless, analysts at Imperial Capital announced this morning that they are downgrading the stock to "in-line." Why?

According to Imperial, "an increasingly challenging consumer spending environment" and expected "highly promotional and competitive holiday season" all augur poorly for LeapFrog's profits in the current quarter. Although long-term, Imperial remains optimistic about the stock, the analyst is cutting $0.20 per share off its earnings estimates for both this year and next, reducing 2013 estimates to $0.44 per share, and 2014 estimates to $0.55.

If Imperial is right about that, then LeapFrog's current 5.6 "P/E ratio" may not be as big of a bargain as it looks. The $0.44 in earnings per share this year could soon have the stock valued at a P/E of 17.5 (if the stock price does not change), or a slightly less pricey 14 times forward earnings valuation.

And yet, even if Imperial is right about LeapFrog's earnings, I still think the stock's cheap enough to own. Moving from $0.44 to $0.55 in the space of a year implies 25% annualized earnings growth -- more than enough to justify a 17.5 P/E. Indeed, even the more conservative consensus projection for LeapFrog -- 17.5% long-term growth, according to Yahoo! Finance data -- should justify today's price.

Long story short, LeapFrog may not be as big of a bargain as it appears on the surface. But it's still a big enough bargain to buy."

http://finance.yahoo.com/news/wednesdays-top-upgrades-downgrades-172244884.html