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 Ternium (TX +0.51%) climbed 3% today after Morgan Stanley upgraded the steel products company from equal-weight to overweight.
So what: Along with the upgrade, analyst Carlos de Alba significantly boosted his price target on the stock to $31.60 (from $25.20), representing nearly 30% worth of upside to yesterday's close. While value investors might be turned off by the stock's rather volatile run-up over the past year, de Alba thinks Ternium has plenty of juicy catalysts ahead to fuel the rally even further.
Now what: Morgan Stanley sees solid operational improvement over the next few years. "Ternium has two new facilities in Mexico that are to ramp up in the next 9 months, providing mileposts for 1) a better operational risk profile, with an increased Mexican participation; 2) EBITDA growth of 13% in 2013–15; and 3) industry-high FCF yield," de Alba wrote in a note to clients. Given that the stock still trades at a paltry price-to-cash flow of four, I'd have to agree with de Alba's call that investors have room to benefit from those prospects.
