While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a look at particularly stock-shaking analyst upgrades and downgrades -- just in case their reasoning behind the call makes sense.
What: Shares of Kansas City Southern (NYSE:KSU) climbed 3% today after Bank of America upgraded the railroad operator from neutral to buy.
So what: Along with the upgrade, analyst Ken Hoexter planted a price target of $113 on the stock, representing about 14% worth of upside to yesterday's close. So while momentum traders might be turned off by KCS's price weakness over the past six months, Hoexter's call could reflect a sense on Wall Street that its growth prospects are too cheap to pass up.
Now what: According to Bank of America, KCS's risk and reward trade-off is rather attractive at this point. "KCS enjoys industry leading volume growth given its exposure to the rapidly growing Midwest to South Central U.S., as well as Mexico's ongoing industrialization (40% of its revenues are from Mexico)," said Hoexter. "KCS' revenues are driven mainly by Industrial, Chemical and Ag (and to a lesser extent Coal, Intermodal and Auto). Given its above industry average growth, KCS' shares typically trade at a 5-6 point premium to the other Class I rails." When you couple that upbeat outlook with KCS's still-sluggish stock price -- off about 20% from its 52-week highs -- it's tough to disagree with Bank of America's bullishness.
Brian Pacampara owns shares of Bank of America. The Motley Fool recommends Bank of America. The Motley Fool owns shares of Bank of America. 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.
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