Why Tetra Tech, Inc. Might Outperform in 2014

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 Tetra Tech, (NASDAQ: TTEK  ) gained 3% this morning after KeyBanc upgraded the engineering company from Hold to Buy.

So what: Along with the upgrade, analyst Tahira Afzal planted a price target of $33 on the stock, representing about 14% worth of upside to yesterday's close. While contrarians might be turned off by Tetra Tech's rebounding share price in recent months, Afzal believes there's more room to bounce given the still-improving trend of the company's end markets.

Now what: KeyBanc raised its 2014 EPS estimate for Tetra Tech from $1.70 to $1.75 and from $1.96 to $2.02 in 2015. "[W]e are incrementally comfortable post channel checks, current macro events, and recent TTEK results that FY13 was a transitory year for the firm," noted Afzal. "We expect TTEK shares, which now trade at a notable discount to both its historical averages and E&C peers, to revert back to a premium multiple through FY14 as the firm delivers and perhaps exceeds quarterly earnings expectations." With the stock currently trading at a forward P/E of 14, that certainly seems like a reasonable bet.

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