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 Hewlett-Packard Company (NYSE:HPQ) climbed 2% this morning after Bank of America upgraded the IT services giant from neutral to buy.
So what: Along with the downgrade, analyst Scott Craig boosted his price target to $139 (from $29), representing about 35% worth of upside to yesterday's close. While contrarians might be turned off by HP's strong share-price turnaround in 2013, Craig believes there's more room to bounce given his view of continued operating improvement and relative undervaluation.
Now what: According to Bank of America, HP's risk/reward trade-off is rather tempting at this point. "Our Buy rating is predicated on (1) closing the P/E multiple gap on peers [...] (2) stable-to-slightly increasing EPS revisions, as the turnaround/restructuring progresses; (3) strong free cash flow (FCF) generation (15% yield); (4) commitment to shareholder returns of 50% of FCF in dividend and buyback; and (5) poor Street/investor sentiment," noted Craig.
With HP shares still trading at a paltry forward P/E of 7 even after the big run in 2013, it's pretty tough to disagree with Bank of America's bullishness.
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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