Why Meritor Inc.'s Shares Plunged 12% on Tuesday

By Markets Fool.com

Image source: Getty Images.

Continue Reading Below

What: Shares of equipment manufacturer Meritor Inc. dropped as much as 11.6% in afternoon trading on Wall Street after being downgraded by analysts. Shares were down a more modest 8.9% as of 2:50 p.m. EDT.

So what: Analysts at Piper Jaffray downgraded Meritor's stock from neutral to an underweight rating. Shares were given a $6.00 price target, down from a previous $6.50. The target is now less than 10% below where shares are trading.

Now what: History shows that Wall Street analysts aren't very good at predicting stock movements and actually have little incentive to do so. So I would take a single downgrade with a grain of salt.

If you look at management's guidance for 2016, they're expecting earnings per share of $1.55 to $1.65, which puts the company's current P/E ratio below 4; that's an incredible value. And with $90 million in free cash flow expected for the year, I think there's still value in shares, even in a rough operating environment.

The article Why Meritor Inc.'s Shares Plunged 12% on Tuesday originally appeared on Fool.com.

Continue Reading Below

Travis Hoium has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.