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 analyst upgrades and downgrades -- just in case their reasoning behind the call makes sense.
What: Shares of Rackspace Hosting (RAX) soared 6% today after Morgan Stanley upgraded the cloud computing services specialist from equal weight to overweight.
So what: Along with the upgrade, analyst Keith Weiss planted a price target of $45 on the stock, representing about 40% worth of upside to yesterday's close. So while momentum traders might be turned off by the stock's sharp pullback over the past six months, Weiss' call could reflect a growing sense on Wall Street that Rackspace's growth prospects are becoming too cheap to pass up.
Now what: Morgan expects Rackspace's top line to grow 17% in 2014. "After a challenging year, we saw Rackspace showing improved bookings momentum exiting 2013, a trend we expect to continue in 2014," wrote Weiss in a note to investors. "The public cloud space is seeing aggressive competition from AWS and others, but we believe that a combination of strong industry growth and differentiated service offerings should allow RAX to deliver profitable growth over time." When you couple those tailwinds with Rackspace's cheapish EV/EBITDA of 10, it's tough to disagree with Morgan's upgrade.
