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 Hewlett-Packard Company (NYSE: HPQ ) climbed 2% this morning after Bank of America upgraded the IT services giant from neutral to buy.
So what: Along with the downgrade, analyst Scott Craig boosted his price target to $139 (from $29), representing about 35% worth of upside to yesterday's close. While contrarians might be turned off by HP's strong share-price turnaround in 2013, Craig believes there's more room to bounce given his view of continued operating improvement and relative undervaluation.
Now what: According to Bank of America, HP's risk/reward trade-off is rather tempting at this point. "Our Buy rating is predicated on (1) closing the P/E multiple gap on peers [...] (2) stable-to-slightly increasing EPS revisions, as the turnaround/restructuring progresses; (3) strong free cash flow (FCF) generation (15% yield); (4) commitment to shareholder returns of 50% of FCF in dividend and buyback; and (5) poor Street/investor sentiment," noted Craig.
With HP shares still trading at a paltry forward P/E of 7 even after the big run in 2013, it's pretty tough to disagree with Bank of America's bullishness.
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