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 Hewlett-Packard (HPQ 1.07%) rallied 1% this morning after S&P Capital IQ upgraded the IT services giant from buy to strong buy.
So what: Along with the upgrade, analyst A. Zino boosted his price target to $44 (from $39), representing about 30% worth of upside to yesterday's close. So while contrarian traders might be turned off by HP's price strength over the past year, Zino's call could reflect a sense on Wall Street that its improvement prospects still aren't fully baked into the valuation.
Now what: S&P raised its 2014 EPS estimate for HP by $0.01 to $3.72 and its 2015 view by $0.04 to $3.92. "We have greater conviction about stabilization within HPQ's PC and printing markets, which should give it time to execute on new product initiatives in mobility, enterprise and software," said Zino. "We see a better IT spending outlook in calendar year '15 and positively view free cash flow/balance sheet improvement. We see earnings growth aided by cost cutting efforts." When you couple that upbeat outlook with HP's still-cheapish forward P/E of 9, it's tough to disagree with S&P's bullish conviction.
