Friday, December 26, 2008

Forest City Enterprises "astonished and appalled" at Morningstar for calling stock worthless

A Cleveland Plain Dealer blog entry headlined Forest City fights back reported that Forest City Enterprises Inc. called Morningstar's analysis that the stock is worthless "was based on flawed assumptions and inaccurate interpretations of the company's debt obligations and its construction costs."

The Plain Dealer reported:
"We disagree in the strongest possible terms with Morningstar's opinion," spokesman Jeff Linton wrote in a statement. "Further, we are astonished and appalled that Morningstar would issue such an opinion without having made contact with Forest City."

Linton said no Morningstar representative has contacted or spoken to any senior-level executive at Forest City in two years... Five analysts who regularly cover Forest City have taken a neutral stance on the stock or expect it to perform slightly better than the market.

"We remain stable, with good liquidity and solid cash flow from our operations, and we have implemented a strategy to specifically address current market conditions," Linton said.


Debate pending

I don't know whether Morningstar typically contacts senior-level executives before issuing such a dramatic assessment, but Forest City's grievance seems reasonable. (If only they would reciprocally answer questions from the press themselves. Updated: DDDB points to flawed assumptions and inaccurate interpretations re AY.)

The analysts who are neutral or slightly positive on the stock should count for something--indeed, the consensus among five analysts tracked by Yahoo is 2 on a scale of 1 (Buy) to 5 (Sell), with two at Strong Buy, one at Buy, and two at Hold. The analysts haven't exactly distinguished themselves by publicly asking hard questions of the company. But I think neither they nor Morningstar based their reports on a close look at Atlantic Yards.

Maybe they and the Morningstar analyst could put their cards on the table and have a debate.

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