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Why PPL Corporation Might Outperform in 2014

By Brian D. Pacampara, CFA – Feb 4, 2014 at 10:34AM

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Does this analyst make a good case or is it just more noise from Wall Street?

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 PPL Corporation (PPL 0.41%) gained slightly this morning after Jefferies upgraded the energy and utility company from hold to buy.

So what: Along with the upgrade, analyst Paul Fremont raised his price target to $34 (from $33), representing about 11% worth of upside to yesterday's close. While momentum traders might be turned off by the stock's sluggish action over the past six months, Fremont thinks PPL is too cheap to pass up given its seemingly undervalued unregulated supply segment.

Now what: According to Jefferies, PPL's risk/reward trade-off is pretty attractive at this point. "We are upgrading PPL to Buy from Hold based on the free option that investors get if the company is able to spin-off its unregulated supply business," noted Fremont. "Management has forecasted PPL's unregulated generation to be break-even beginning in 2015 and we believe the market is currently ascribing no value to these assets." When you couple PPL's juicy optionality with its 4.5%-plus dividend yield, it's tough to disagree with Jefferies' bullish stance. 

Brian Pacampara has no position in any stocks mentioned, and neither does The Motley Fool. 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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