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 Microsoft (MSFT 3.90%) climbed 1.5% this morning after Jefferies upgraded the software behemoth from hold to buy.
So what: Along with the upgrade, analyst Ross MacMillan boosted his price target to $42 (from $33), representing about 22% worth of upside to yesterday's close. While value investors might be turned off a bit by Microsoft's solid return in 2013, MacMillan believes that there's plenty of room to run given several key developments that are likely to unfold in the not-so-distant future.
Now what: MacMillan thinks that Microsoft is perfectly set up for five positive catalysts over the next 18 months:
- A new operating structure with a better view into its "BestCo" assets,
- More emphasis on its cloud capabilities with Office 365/Azure,
- Possible upside to Windows fueled by Intel's improving competitive position,
- Rising value of its Google Android-related intellectual property, and
- The potential for a new CEO to improve the company's product portfolio and capital allocation decisions.
More important, with the stock still trading at a forward P/E of 12 and boasting a 3%-plus dividend yield, I'd agree that shareholders still have room to profit from those value enhancing events.
