Why Diamond Foods, Inc. Shares Are Poised to Bounce Back

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 Diamond Foods  (NASDAQ: DMND  ) rallied 3% in premarket trading after KeyBanc upgraded the packaged-food company from hold to buy.

So what: Along with the upgrade, analyst Akshay Jagdale planted a price target of $32 on the stock, representing about 16% worth of upside to yesterday's close. While contrarian traders might be turned off by Diamond's sharp pullback recently, Jagdale's call could reflect a sense on Wall Street that the concerns surrounding its growth trajectory are becoming overblown.

Now what: According to KeyBanc, Diamond's risk/reward trade-off is rather attractive at this point. "The recent underperformance in Diamond Foods's stock price, elimination of the 'tail-risk' associated with the Company and an emerging inflection in DMND's Snacks segment growth are the main drivers behind our upgrade of the stock," said Jagdale. "We acknowledge that the Company's Nut business is still a long way away from a successful turnaround; however, we think the stock works despite this." With Diamond shares still off about 20% from their 52-week highs and trading at a PEG of 1, the downside certainly seems limited enough to bet on its long-term growth. 

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