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 Office Depot (NYSE: ODP ) rallied 4% today after Bank of America upgraded the office supply retailer from "underperform" to "buy."
So what: Along with the upgrade, analyst Denise Chai raised her price target to $6.50 (from $3.50), representing about 20% worth of upside to yesterday's close. While momentum traders might be turned off by Office Depot's recent share-price weakness, Chai believes that it presents investors with a solid entry point given the potential synergies from its recent merger with OfficeMax.
Now what: Bank of America expects the combined entity to post a $0.02-per-share loss in 2013, a $0.32 profit in 2014, and earnings of $0.54 in 2015. "With the merger with OfficeMax completed on Nov. 5 and the stock down 10% since 11/1, we are turning positive on the potential for cost synergies, particularly with the announcement of a new outside CEO with substantial turnaround experience," noted Bank of America. But while Office Depot might be set up for a nice short-term pop, increasingly strong competitive headwinds continue to make it a questionable long-term opportunity.
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