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 Yelp (YELP 1.57%) climbed about 2% in pre-market trading Tuesday after SunTrust Robinson Humphrey upgraded the consumer-review website from neutral to buy.
So what: Along with the upgrade, analyst Robert Peck planted a price target of $85 (from $100), representing about 29% worth of upside to yesterday's close. So while momentum traders might be turned off by Yelp's sharp pullback over the past month, Peck's call could reflect a growing sense on Wall Street that the fears surrounding its growth trajectory are becoming overblown.
Now what: According to SunTrust, Yelp's risk/reward trade-off is rather attractive at this point. "We believe there are also two company specific issues contributing (at the margin) to relative underperformance in the past month: 1) recent negative headlines, regarding FTC complaints and a somewhat related VA Supreme Court case; and 2) weak international traffic data," said Peck. "On the first item, we see little if any impact to the business/financials and offer a thorough walk-through in this report. On the second item, we flagged international expectations as perhaps too high in our initiation and view a right sizing of sentiment as healthy." When you couple that balanced perspective with Yelp's share-price weakness of late -- off about 35% from its 52-week high -- it's pretty tough to disagree with SunTrust's upgrade.
