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 Level 3 Communications, (LVLT) climbed about 5% today after Canaccord Genuity upgraded the communications network from hold to buy.
So what: Along with the upgrade, analyst Greg Miller boosted his price target to $41 (from $30), representing about 19% worth of upside to its Wednesday close. While contrarians might be turned off by Level 3's earnings-related surge yesterday, Miller thinks there's plenty of room to run given his forecast of continued revenue and free cash flow improvement.
Now what: According to Canaccord, Level 3's risk/reward trade-off is greatly improved. "After more than a decade of waiting, it would appear that the efforts of the former management team combined with the new CEO's leadership have finally begun to pay off to the point where we believe investors will benefit meaningfully," noted Miller. "With a focus that has shifted from a slow deleveraging exercise via acquisitions to now focusing on integration and execution of assets the company possesses, we believe we are on the cusp of a sustained outperformance of the shares of Level 3." Of course, given just how high the stock has already bounced this week, Fools might wait for some of the exuberance to fade before betting on that bull talk.
