Why Heritage-Crystal Might Be a Sparkling Selection

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a look at particularly stock-shaking analyst upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of Heritage-Crystal Clean (NASDAQ: HCCI  ) climbed 2.5% this morning after Wunderlich Securities upgraded the industrial waste management specialist to buy from hold.

So what: Along with the upgrade, analyst Michael Hoffman boosted his price target on the stock to $20 per share (from $16), representing about 11% worth of upside to yesterday's close. Hoffman cited increased gasoline capacity at the company's Indianapolis re-refinery (which should be available in 2014) and lower costs for the upgrade, giving investors some decent visibility into the company's near-term profitability.

Now what: Wunderlich expects the profitability of used oil to gradually improve over the rest of the year. "The plant thru-put is already up 10-12 million gallons with the addition of higher capacity air pollution equipment in the third period," writes Hoffman in a note to clients. "Couple that with better lube prices and lower used oil collection costs ... and HCCI is poised for a 2H13 upside surprise vs. the consensus outlook, particularly in the fourth period." Given that the stock is already flirting with Wunderlich's price target of $20 and trading at a forward P/E of 25, however, Heritage's risk and reward trade-off doesn't seem all that enticing to this Fool. 

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