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 Baidu, Inc. (BIDU 0.98%) gained 4% today after the Chinese Internet search giant posted strong quarterly results and received a neutral-to-buy upgrade from Deutsche Bank.
So what: Along with the upgrade, analyst Alan Hellawell III boosted his price target to $229 (from $178), representing about 43% worth of upside to yesterday's close. So while momentum traders might be turned off by Baidu's price sluggishness in recent months, Hellawell's call could reflect a growing sense on Wall Street that its prospects are becoming too cheap to pass up.
Now what: According to Deutsche, Baidu's risk/reward trade-off is particularly attractive at this point. "Baidu continues to guide upbeat top line at 56%-60% YoY for 2Q, beating cons. by ~4%," said Hellawell. "Despite a purported heavy investment plan for the rest of FY14, we believe the market has underestimated BIDU's viability and is overly conservative on its growth /earnings outlook. We believe it is unjustified for BIDU to trade at a significant discount vs. peer avg amid steadily improving fundamentals." When you couple Baidu's cheapish valuation with its still-rock solid financial position, it's tough to disagree with Deutsche's upgrade.
