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 Verizon Communications (NYSE:VZ) climbed 1% today after Deutsche Bank upgraded the telecom giant from hold to buy.
So what: Along with the upgrade, analyst Brett Feldman boosted his price target to $56 (from $49), representing about 15% worth of upside to yesterday's close. While momentum investors might be turned off by Verizon's share slide over the past six months, Feldman believes that the downside might now be limited given the cheapish valuation and room for operational improvement.
Now what: Deutsche Bank sees a few tailwinds working in Verizon's favor.
"(1) Wireless operating momentum looks sustainable; the opportunity to grow revenue within the existing base far exceeds the threat of stiffer competition. (2) 2013-2014 looks like a key inflection point for both wireline revenues and margins due to sustainable growth in FiOS and diminishing headwinds in Enterprise. (3) Valuation has compressed significantly on both an absolute and relative basis; this is likely due to technical concerns about 'flow back' post the VZW deal that seem overblown and should dissipate in early 2014," the analyst firm noted.
With the stock still off about 10% from its 52-week highs and sporting a 4.5% dividend yield, I'd have to agree that Verizon's risk/reward trade-off looks attractive.
Fool contributor Brian Pacampara has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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.