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.
Brian Pacampara has no position in any stocks mentioned. The Motley Fool recommends NVIDIA. 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.