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 Sprint (NYSE:S) slipped 2% this morning after Deutsche Bank downgraded the telecom giant from buy to hold.
So what: Despite the downgrade, analyst Brett Feldman raised his price target to $9.25 (from $8.50), representing about 6% worth of downside to yesterday's close. While Feldman remains bullish on Sprint's long-term prospects, he believes that the stock's recent run, coupled with short-term M&A uncertainty, offers investors a good chance to take some money off the table.
Now what: According to Deutsche, Sprint's near-term risk/reward trade-off is unattractive at this point. "[W]e believe the shares now reflect both a potential ramp in EBITDA in '14-'15 from Network Vision cost savings and some of the potential upside to longer term numbers," noted Deutsche. "In our view, it is too soon to increase estimates, especially in light of the shifting competitive environment, or to pay for potential synergies from a deal with TMUS, which Sprint may not pursue near term and which would likely face stiff pushback from the regulators if it does." With Sprint shares still up about 80% from their 52-week highs, it's tough to disagree with Deutsche's cautious stance.
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.