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 Joy Global (JOY) gained 1% in pre-market trading Friday after Bank of America upgraded the mining equipment manufacturer from neutral to buy.
So what: Along with the upgrade, analyst Ross Gilardi planted a price target of $70 on the stock, representing about 13% worth of upside to yesterday's close. So while contrarian traders might be turned off by Joy Global's earnings-related pop yesterday, Gilardi's call could reflect a sense on Wall Street that the company's growth prospects still aren't fully baked into the valuation.
Now what: According to BofA, Joy Global's risk-to-reward trade-off is rather attractive at this point. "We upgrade Joy Global to Buy on the back of a 7% FQ2 EPS beat and FY14 guidance reiteration despite a brutal coal operating environment," said Gilardi. "Joy's aftermarket business (70% of sales) is putting a floor under earnings, and aftermarket orders were up 10% for the second quarter in a row." When you couple Joy Global's still-hefty debt load with its highly volatile and suddenly hot shares, however, I'd hold out for a wider margin of safety before betting on that trend to continue.
