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 The Valspar Corporation (NYSE: VAL ) gained 2% this morning after Goldman Sachs upgraded the paint manufacturer from neutral to conviction buy.
So what: Along with the two-notch upgrade, analyst Robert Koort boosted his price target to $97 (from $83), representing about 27% worth of upside to yesterday's close. So while momentum traders might be turned off by Valspar's flat trading in recent months, Koort's call could reflect a sense on Wall Street that its growth prospects are becoming too cheap to pass up.
Now what: According to Goldman, Valspar's risk/reward trade-off is particularly attractive at this point. "VAL now carries what we view as a substantial 4-6x P/E multiple discount [to larger peers]," said Koort. "We attribute this to VAL's smaller market cap, a diversified architectural/industrial product mix and broad global exposure. With VAL building traction through new business initiatives, cyclical lift in its industrial businesses, and recovery in its global paint markets, we expect improved investor awareness and a shrinking valuation gap." Given Goldman's solid stock-picking track record -- currently ranked in the top 15% of our CAPS community -- value-oriented Fools might want to take a closer look at Valspar.
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