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 Twitter, Inc. (TWTR) surged 3% today after Nomura Securities upgraded the microblogging giant from neutral to buy.
So what: Along with the upgrade, analyst Anthony DiClemente planted a price target of $43 on the stock, representing about 40% worth of upside to yesterday's close. So while momentum traders might be turned off by Twitter's sharp year-to-date pullback, DiClemente's call could reflect a sense on Wall Street that its growth prospects are becoming too cheap to pass up.
Now what: Nomura raised its top-line estimates for Twitter on improved monetization and its adjusted EBITDA view on higher incremental margins. "We believe that the market has now priced in the expectation that Twitter remains a niche social media product," said DiClemente. "We believe risk / reward is much more favorable now, given the possibility that product enhancements rejuvenate user growth; we think ARPU will beat estimates given strength in ad demand, and we believe that incremental margins should be higher than the Street expects." More importantly, with Twitter boasting a rock-solid balance sheet and still-beaten down stock price, the downside seems limited enough to bet on it.
