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 Staples (SPLS +0.00%) slipped about 2% today after Goldman Sachs downgraded the office products retailer from neutral to sell.
So what: Along with the downgrade, analyst Matthew Fassler lowered his price target to $11 (from $11.50), representing about 6% worth of downside to Friday's close. So while contrarian traders might be attracted to Staples' sharp pullback over the past year, Fassler's call could reflect a sense on Wall Street that its margin expansion potential is just too limited to trigger a significant rebound.
Now what: According to Goldman, Staples' risk/reward trade-off is rather unattractive at this point. "Staples is coping with the same sector dynamics, but coming from a higher and tougher, starting point for margins," said Fassler. "We model margins stabilizing in 2015-2016 after a tough 2014, but see structural challenges making margin recovery difficult." Of course, with Staples shares now off more than 30% from their 52-week highs and boasting a 4%-plus dividend yield, those challenges might already be baked into the valuation.
