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 EnCana (NYSE:ECA) climbed about 2% this morning after Deutsche Bank upgraded the natural gas and oil producer from sell, to hold.
So what: Along with the upgrade, analyst Stephen Richardson planted a price target of $22 on the stock, representing about 20% worth of upside to yesterday's close. While momentum traders might be turned off by the stock's steady decline over the past year, Richardson believes that EnCana's appreciation prospects are starting to look better given EnCana's firming financial picture.
Now what: Deutsche expects some short-term headaches ahead before any long-term positives are seen. "After significant underperformance and with results from strategic review expected by year end, the debate at ECA is whether to buy ahead of year end. We are waiting," noted Richardson. "While we see a number of potential outcomes from this review, we struggle to define a near-term path that is tangibly accretive to equity holders. The first changes are likely positive (and overdue) for EnCana Corp., but may entail some near-term pain (dilution) for shareholders (and the dividend)." When you couple all of that uncertainty with the stock's 30-plus P/E, I'd also wait for a wider margin of safety before making a significant bet on EnCana.
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.