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 Tempur Sealy International, Inc. (NYSE:TPX) gained about 2% today after Piper Jaffray upgraded the mattress specialist from neutral to overweight.
So what: Along with the upgrade, analyst Peter Keith raised his price target to $56 (from $50), representing about 16% worth of upside to Friday's close. While momentum traders might be turned off by Tempur's weak share price in recent weeks, Keith thinks that it's too cheap to pass up given the company's seemingly improving sales and margin prospects over the next two years.
Now what: According to Piper, Tempur has several tailwinds working in its favor.
"(1) Tempur International (Int'l) sales (led by Europe) recently turned positive and appear poised to accelerate in 2014; (2) Tempur's new product line refresh appears to be its best launch in several years and should drive sales improvement in 2H; and (3) TPX North America (NA) sales likely to improve once weather conditions become warmer across the U.S.," noted Keith. "Based on the contribution margin dynamics for both Tempur Int'l and Tempur NA, and our anticipated sales acceleration in each, we are increasing our 2014 and 2015 to $2.81 and $3.50, respectively."
When you couple that positive outlook with Tempur's forward P/E in the low teens, it's tough to disagree with Piper's bull stance.
Brian Pacampara has no position in any stocks mentioned. The Motley Fool owns shares of Tempur Sealy International. 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.