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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 (NYSE: HPQ ) rallied about 3% today after Barclays upgraded the IT services giant from equal weight to overweight.
So what: Along with the upgrade, analyst Ben Reitzes boosted his price target to $38 (from $33), representing about 30% worth of upside to yesterday's close. So while contrarians might be turned off by the stock's strength over the past year, Reitzes' call suggests that Mr. Market continues to overlook some of HP's still-solid turnaround prospects.
Now what: According to Barclays, HP has several tailwinds working in its favor.
"First, we believe HP could gain share for several quarters in x86 servers at the expense of IBM (NYSE: IBM ) /Lenovo, which could also help support sales of 3PAR storage gear. Second, while outsourcing is a concern, execution could improve in maintenance (Technology Services) and remains solid in printing and in PCs. Third, free cash flow has recovered nicely and the company seems well positioned for growing buybacks and dividends as it returns 'at least' 50% of free cash flow to shareholders," said Reitzes.
When you couple that upbeat outlook with HP's cheapish forward P/E of eight, it's tough to disagree with Barclays' upgrade.
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