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 Ashland (ASH -0.22%) fell 3% this morning after the Jefferies Group downgraded the specialty chemical company from buy to hold.
So what: Along with the downgrade, analyst Laurence Alexander lowered his price target on the stock to $97 per share (from $104), representing about 10% worth of upside to yesterday's close. While activist investor Jana Partners continues to push Ashland's management to make significant value-boosting changes, Alexander believes there's just too much uncertainty at these levels to make the risk/reward ratio favorable.
Now what: Jefferies doesn't expect the fundamentals to improve anytime soon. "Investor confidence in the asset shuffling thesis may not withstand 2-3 more rounds of downward revisions to EPS and FCF forecasts for 2014E-2016E," Alexander cautioned. "Pension headwinds, incentive comp, Valvoline marketing expenses, sluggish end markets: in our view, it all adds up, and makes further multiple expansion more difficult." When you couple those headwinds with Ashland's still-heavy debt load, it's tough to argue with Jefferies' opinion that the stock looks risky.
