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 PACCAR, Inc. (PCAR -0.89%) gained about 1% today after Goldman Sachs upgraded the truck manufacturer from neutral to buy.
So what: Along with the upgrade, analyst Jerry Revich boosted his price target to $80, representing about 20% worth of upside to yesterday's close. So while contrarians might be turned off by the stock's strength in recent months, Revich's call suggests that PACCAR's operating tailwinds still aren't being fully appreciated by Mr. Market.
Now what: According to Goldman, PACCAR's risk/reward trade-off remains quite attractive at this point. "While investor focus is on new European (30% of PCAR profits) engine regulations, freight fundamentals are overwhelmingly positive entering the sixth quarter of recovery, providing visibility on a sustained truck capex recovery," said Revich. "In US truck (57% of PCAR profits) we acknowledge recently elevated expectations, but believe tight truck supply and a modest freight recovery will sustain newfound trucker pricing discipline and equipment refresh cycle through at least 2015." When you couple those positive trends with PACCAR's still-reasonable forward P/E of 16, it's tough to disagree with Goldman's upgrade.
