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 Walt Disney (NYSE:DIS) gained slightly this morning after Topeka Capital upgraded the entertainment giant from hold to buy.
So what: Along with the upgrade, analyst David Miller planted a price target of $91 on the stock, representing about 13% worth of upside to Friday's close. So while contrarian traders might be turned off by Disney's strong rally over the past six months, Miller's call could reflect a sense on Wall Street that the company's earnings call tomorrow will fuel further gains.
Now what: According to Topeka, Disney's risk/reward trade-off is pretty favorable at this point. "While we have held out for quite some time for a lower price, we think now is the time to get constructive, as the stock trades at 14.6x our F2016 non-GAAP EPS estimate of $5.40/share, a 16.4% growth clip over F2015, and a reasonable multiple in our view as DIS has essentially been a "PE/G of 1" type of name ever since the 1996 Cap-Cities deal," said Miller. "With that, putting new money to work at a multiple of F2016 prospects, while not exactly super-juicy, is compelling enough for us to improve our rating." Given Disney's high-quality assets and strong cash flows, it's tough to disagree with Topeka's upgrade.
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Brian Pacampara has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Walt Disney. 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.