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 Kohl's (NYSE:KSS) climbed 1.5% today after Deutsche Bank upgraded the department store operator from sell to hold.
So what: Along with the upgrade, analyst Paul Trussell raised his price target to $50 (from $46), representing about 7% worth of downside to yesterday's close. While Trussell remains concerned about the company's slowing sales and compressing margins, he doesn't see any negative catalysts in the near future that will knock the share price down significantly.
Now what: Deutsche thinks the downside might be limited for a few reasons.
"First, we believe 3Q SSS are tracking slightly below or at the low-end of plan, however, this no longer stands out amidst the weak retail sales environment; Second, looking ahead, risks to the P&L appear limited as updated guidance incorporates lower GPM in 3Q and negative comps in 4Q; Third, we credit management for ongoing initiatives, including the loyalty rewards test and beauty expansion, which have sparked investor interest and may drive gains in future quarters," said Deutsche.
When you combine those positive trends with Kohl's cheapish valuation -- price-to-cash flow of 8 and dividend yield of 2.6% -- I'd agree with Deutsche that the risk/reward trade-off looks decent.
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.
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