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 United States Steel Corporation (X -2.32%) climbed 5% today after KeyBanc upgraded the steel producer from Hold to Buy.
So what: Along with the upgrade, analyst Philip Gibbs planted a price target of $37 on the stock, representing 25% worth of upside to the previous close. While value investors might be turned off by U.S. Steel's sharp rise since the summer, Gibbs believes that several company-specific and macro factors will continue to fuel the stock in 2014.
Now what: KeyBanc boosted its 2014 EPS estimate for U.S. Steel from $1.65 to $2.05, well ahead of the Wall Street consensus of $1.21. KeyBanc noted:
[W]e believe shares have more room to run based on our positive carbon hot-rolled steel pricing revisions for 2014: meaningful raw material cost tailwinds (coal, scrap, iron ore); low Street EPS and EBITDA expectations for 2014-2015; an ever-increasing interest rate environment (benefits for pension exposure); more evidence of European macro stability; and above-average likelihood of incremental operational efficiency announcements such as a joint venture or tolling agreement with Allegheny Technologies Incorporated.
With the stock now up nearly 100% from its 52-week lows and trading at a forward P/E of 25, however, it's hard to believe those positives aren't already baked into the price.
