While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a look at particularly stock-shaking analyst upgrades and downgrades -- just in case their reasoning behind the call makes sense.
What: Shares of ITT Educational Services (ESI +0.00%) jumped more than 5% this morning after Wells Fargo upgraded the for-profit educator from market perform to outperform.
So what: Along with the upgrade, analyst Trace Urdan boosted his valuation range to $39-$42 (from $25-$30), suggesting that the shares trade roughly at a 25% discount to their intrinsic value. While value investors might be turned off by the stock's hot run in 2013, Urdan believes that there's room to run given ITT's strong enrollment momentum.
Now what: Wells Fargo boosted its 2013 EPS view from $3.54 to $3.72 and its 2014 estimate from $2.79 to $3.02. "We are upgrading the shares of ESI to Outperform from Market Perform based on what we believe has been continued success in new student enrollment resulting from the company's Opportunity Scholarship," Wells Fargo noted. "Our valuation range rises to $39-42 from $25-30 on the basis of stronger CY2014 EBITDA expectations and a firming multiple." Of course, with ITT shares already up 180% from its 52-week lows and trading at a market-matching price-to-cash flow ratio, I'd wait for a wider margin of safety before jumping in.
