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 Walter Investment Management (NYSE: WAC ) closed down nearly 4% on Friday after Wells Fargo downgraded the loan-servicing company from outperform to market perform.
So what: Along with the downgrade, analyst Joel Houck lowered his valuation range to $35-$40 (from $43-$49), suggesting that the stock is pretty fairly valued at current levels. While value investors might be attracted to the stock's weak performance this year, Houck believes a few headwinds will continue to work against Walter shareholders in 2014.
Now what: Wells Fargo lowered its 2013 EPS estimate from $8.90 to $8.67, and its 2014 forecast from $6.10 to $5.35. "Our downgrade to a Market Perform rating is based on the following: (1) potential impact of rising primary mortgage rates on WAC's origination and HARP business, and the (2) upcoming departure of CFO and COO Charles Cauthen, which could represent a potential distraction for the company," noted Wells Fargo. "Based on these factors, we believe that the near-term upside in shares remains capped."
Of course, with Walter shares now off more than 20% from its 52-week highs and trading at a PEG ratio of 0.5, patient investors might want to pounce on that short-term worry to build a long-term position.
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