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 Best Buy Co Inc (BBY 1.09%) gained 2% today after Morgan Stanley initiated coverage on the electronics retail giant with an overweight rating.
So what: Along with the bullish call, analyst Simeon Gutman planted a price target of $36 on the stock, representing about 26% worth of upside to yesterday's close. So while momentum traders might be turned off by Best Buy's year-to-date plunge, Gutman's call could reflect a sense on Wall Street that its turnaround prospects are becoming too cheap to pass up.
Now what: According to Morgan, Best Buy's risk/reward trade-off is rather attractive at this point. "In BBY, we see a transformed business with significant operating leverage poised for improving top line growth," Gutman said. "Our market share analysis, located within, shows that BBY is rapidly recapturing share in both the physical and digital channels. With the ~$800M of realized Renew Blue savings and more to come, we believe BBY's EBIT margin may approach 5% by 2017, producing EPS power of around $3.75, nearly 80% growth from 2013." When you couple that upbeat outlook with Best Buy's beaten-down stock price and cheapish forward P/E of 11, it's easy to understand Morgan's bullishness.
