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 Yum! Brands, (NYSE:YUM) climbed 3% this morning after Deutsche Bank upgraded the fast-food giant from hold to buy.
So what: Along with the upgrade, analyst Jason West boosted his price target to $90 (from $72), representing about 20% worth of upside to yesterday's close. While value investors might be turned off by Yum!'s share-price surge over the past month, West believes there's plenty of room to run given the company's strong prospects for above-average growth and multiple expansion in 2014.
Now what: Deutsche raised its 2014 EPS estimate for Yum! from $3.49 to $3.59 and expects EPS of $4.19 in 2015. "YUM's story is also supported by steady franchise royalty income from the U.S. [and Yum! Restaurants International] segments, which are ~90% franchised and generate ~2/3 of YUM's profits," Deutsche notes. "Additionally, the YUM portfolio offers significant free cash flow (even in down years)." Of course, with Yum! shares surging to a new 52-week high today and trading at a 30-plus P/E, it's hard to believe those strengths aren't already baked into the valuation.
Fool contributor Brian Pacampara has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.