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 Orbitz Worldwide (NYSE: OWW) gained 4.5% today after UBS initiated coverage on the online travel company with a buy rating.
So what: Along with the bullish call, analyst Eric Sheridan planted a price target of $10 on the stock, representing about 23% worth of upside to yesterday's close. So, while momentum traders might be turned off by Orbitz's price weakness over the past year, Sheridan's call could reflect a sense on Wall Street that its long-term growth prospects are becoming too cheap to pass up.
Now what: According to UBS, Orbitz's risk/reward trade-off is rather attractive at this point. "We believe Orbitz provides investors with exposure to a leading player in the domestic online travel market, with a long runway ahead for its hotel business, particularly given the recent introduction of a new loyalty rewards program (incentivizes both hotel & mobile mix shift)," said Sheridan. "Additionally, we see opportunities for revenue growth residing within Orbitz's business-to-business operations (Orbitz for Business, Orbitz Partner Network) and within International markets." When you couple Orbitz's still-questionable competitive position with its steep-ish forward P/E of 20, however, I'd hold out for an even wider margin of safety before buying into those prospects.
