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 analyst upgrades and downgrades -- just in case their reasoning behind the call makes sense.
What: Shares of NVIDIA Corporation (NASDAQ: NVDA ) gained more than 2% today after RBC Capital upgraded the graphics chip technologist from sector perform to outperform.
So what: Along with the upgrade, analyst Doug Freedman raised his price target to $26 (from $21), representing about 45% worth of upside to Friday's close. So while contrarians might be turned off by NVIDIA's year-to-date price strength, Freedman's call could reflect a sense on Wall Street that its growth prospects still aren't fully baked into the valuation.
Now what: According to RBC, NVIDIA's risk/reward trade-off is rather attractive at this point. "NVDA's ability to leverage its past investments, with a more controlled spending structure ahead on unified, enables strong cash flow that is allowing a focus on capital return ($1.0bil planned for FY15)," said Freedman. "We believe the focus of its strategy including i) high-margin growth through vertical leadership; ii) strong B/S and significant liquidity; iii) focus on OpEx (on unified architecture leverages IP investments), is more aligned to facilitate a multi-year growth period in FCF." When you couple that upbeat outlook with NVIDIA's rock-solid financial position, it's tough to disagree with RBC's bullishness.
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