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 upgrades and downgrades -- just in case their reasoning behind the call makes sense.
What: Shares of Coach (NYSE: COH ) slipped 1% in premarket trading Monday after Wedbush downgraded the luxury handbag specialist from neutral to underperform.
So what: Along with the downgrade, analyst Corinna Freedman lowered her price target to $26 (from $40), representing about 25% worth of downside to Friday's close. So while contrarian traders might be turned off by Coach's sharp pullback over the past year, Freedman's call could reflect a sense on Wall Street that the company's growth prospects are too limited to trigger a rebound.
Now what: According to Wedbush, Coach's risk/reward trade-off is rather unappealing at this point. "The guidance for FY15 was much worse than we anticipated and we lower our already below-consensus EPS estimate from $2.55 to $1.95," said Freedman. "We were also disappointed by a further lengthening of the turnaround timeline, as mgmt. does not expect a full recovery of OM until FY19, with OM partially recovering to just a +20-25% range by FY17." Given Wedbush's seemingly solid track record of stock-picking, Coach bulls might want to investigate those risks more closely.
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