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 Verizon Communications (NYSE:VZ) gained slightly Thursday after FBR Capital upgraded the telecom gorilla from Market Perform to Outperform.
So what: Along with the upgrade, analyst David Dixon raised his price target to $57 (from $55), representing about 11% worth of upside to Wednesday's close. So while momentum traders might be turned off by Verizon's price-strength in recent months, Dixon's call could reflect a sense on Wall Street that its growth prospects still aren't fully baked into the valuation.
Now what: According to FBR, Verizon's risk/reward trade-off is rather attractive at this point. "Our more constructive outlook is driven by: (1) an expected near-term M&A-based tailwind from the expected announcement of a Sprint/T-Mobile combination (which the market is increasingly discounting --incorrectly, in our view) and an increase in deal approval probability upon announcement from current consensus, which remains low; (2) continued momentum in wireless (coupled with a stronger nexus with its wireline asset) with expectation for mid-single-digit growth; and (3) moderating decline in wireline driven by increased adoption and penetration of FiOS and FiOS Quantum," said Dixon. When you couple that upbeat outlook with Verizon's still-juicy 4%-plus dividend yield, it's tough to disagree with FBR's bullishness.
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Brian Pacampara has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.