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 Quality Systems, (NASDAQ: QSII ) sank 5% today after Morgan Stanley downgraded the medical software technologist from equal-weight to underweight.
So what: Along with the downgrade, analyst Ricky Goldwasser lowered his price target to $15 (from $17), representing about 4% worth of downside to yesterday's close. While value investors might be attracted to Quality's sharp plunge during the past six months, Goldwasser's call could reflect a sense on Wall Street that its headwinds still aren't fully baked into the price.
Now what: According to Morgan, Quality's risk/reward trade-off is rather unattractive at this point. "Reimbursement pressure and increased costs have been driving physicians and small hospitals, representing QSII core end market, to join larger hospital systems putting pressure on QSII growth opportunities and earnings trajectory," said Goldwasser. "Ambulatory/ inpatient offerings lag in transition to SaaS. Strategic evaluation process initiated by the board appears to have stalled." Given Quality's still-rock solid balance sheet and beaten-down stock price, however, the downside might actually be limited enough to make a savvy long-term turnaround bet.
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