While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking upgrades and downgrades -- just in case their reasoning behind the call makes sense.
What: Shares of Genworth Financial (NYSE: GNW ) climbed 2% this morning after BTIG upgraded the financial services company from neutral to buy.
So what: Along with the upgrade, analyst Mark Palmer planted a price target of $17.50 on the stock, representing about 38% worth of upside to yesterday's close. While value investors might be turned off by the stock's red-hot rally in 2013, Palmer thinks Genworth's accelerating earnings growth still isn't fully reflected in the valuation.
Now what: Palmer, who sees Genworth earning $1.62 per share in 2014 versus the consensus of just $1.43, is looking closely at four key profit drivers:
- Genworth's U.S. mortgage insurance unit needs to increase its contribution, possibly by $100 million. The move would be driven by a continued change in business mix and the uplift associated with an improving U.S. housing market.
- Expense reductions tied to the elimination of 400 positions announced last June.
- The benefit-to-earnings from rate increases Genworth has implemented and will be able to continue to implement.
- Retirement of $500 million in 5.75% senior unsecured notes due 2014, which should provide about $28 million in interest cost savings.
With Genworth shares up 150% over its 52-week lows and trading at a P/E of 14, however, the valuation doesn't seem to offer a wide margin of safety if any one of those issues doesn't progress as BTIG expects.
More reliable ways to build wealth
Dividend stocks can make you rich. It's as simple as that. While they don't garner the notoriety of high-flying growth stocks, they're also less likely to crash and burn. And over the long term, the compounding effect of the quarterly payouts, as well as their growth, adds up faster than most investors imagine. With this in mind, our analysts sat down to identify the absolute best of the best when it comes to rock-solid dividend stocks, drawing up a list in this free report of nine that fit the bill. To discover the identities of these companies before the rest of the market catches on, you can download this valuable free report by simply clicking here now.