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.
Brian Pacampara has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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.