Why Ashland Inc Shares Could Soar 25%

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 Ashland Inc (NYSE: ASH  ) gained about 2% Thursday morning after Goldman Sachs upgraded the specialty chemicals company from Neutral to Conviction Buy.

So what: Along with the two-notch upgrade, analyst Brian Maguire planted a price target of $135 on the stock, representing about 27% worth of upside to Wednesday's close. So while contrarian traders might be turned off by Ashland's price-strength over the past year, Maguire's call could reflect a sense on Wall Street that management's restructuring potential still isn't being fully appreciated by investors.

Now what: According to Goldman, Ashland's risk/reward trade-off is particularly attractive at this point. "Our $135, 12-month price target implies 9.7x 2015E EBITDA vs. 8.0x current multiple," said Maguire. "We believe the higher multiple is achievable through management actions such as portfolio changes. Once all the pieces are in the right places, we think investors will view ASH as a Specialty Chemical company with structurally higher margins and per share earnings power. Nearer-term, we also believe that Street estimates underestimate restructuring and share repurchase benefits and our 2015 EPS estimate of $7.61 is $0.26 above consensus." When you couple that upbeat outlook with Ashland's still-reasonable forward P/E in the mid-teens, it's tough to disagree with Goldman's conviction call.

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