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 Time Warner Cable, Inc. (NYSE:TWC) slipped 1% this morning after Needham & Company downgraded the cable giant from buy to hold.
So what: Along with the downgrade, analyst Laura Martin maintained her price target of $135, almost exactly where the stock closed on Friday. While enterprising traders might be attracted to the buyout buzz surrounding Time Warner of late, Martin believes that the risk/reward trade-off at this point is pretty balanced.
Now what: Needham doesn't expect Time Warner's business to improve anytime soon, lowering its Q4 subscriber and profit estimates for the company. "TWC is currently trading at a forward year (2014E) P/E of 18x, $5,700 per basic video subscriber, and $2,224 per RGU (revenue generating unit)," noted Martin. "Having reached our target price, and with a large gap between the bid and ask of a potential take-over, we prefer to move to the sidelines until it becomes clear whether TWC will be successfully acquired." When you couple Time Warner's worrisome operating trends with its red-hot stock price, it's tough to disagree with Needham's cautious stance.
Fool contributor Brian Pacampara has no position in any stocks mentioned, and neither does The Motley Fool. 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.