Why Guess? Inc. Shares Could Bounce 15%

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 Guess? (NYSE: GES  ) gained 3% in pre-market trading Tuesday after Piper Jaffray upgraded the apparel company from neutral to overweight.

So what: Along with the upgrade, analyst Erinn Murphy boosted her price target to $32 (from $25), representing about 17% worth of upside to yesterday's close. So while momentum traders might be attracted to the year-to-date price weakness at Guess?, Murphy's call could reflect a sense on Wall Street that the company's turnaround prospects in Europe are becoming too cheap to pass up.

Now what: Piper raised its 2014 and 2015 earnings-per-share projections for Guess? from $1.44 to $1.52 and from $1.65 to $1.86, respectively. "Broadly speaking across our checks, we are hearing about improvements in European wholesale order flow for Spring 2015. While the season is still under way, trends are starting to inflect and we are hearing that the closures of the independents within the Italian wholesale channel are starting to base," said Murphy. "With the exception of France in which visibility remains cloudy, consumer confidence is building in the region and discretionary spending is improving. For GES, Europe represents approx. 35% of overall sales and Italy & Spain combined are 20%." When you couple that upbeat outlook with the company's juicy 3%-plus dividend yield, it's easy to understand Piper's bullishness. 

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