Why iGATE Corporation Shares Surged

Does this analyst make a good case? Or is it just more noise from Wall Street?

Brian D. Pacampara, CFA
Brian D. Pacampara, CFA
Jul 1, 2014 at 2:19PM
Technology and Telecom

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 analyst upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of iGATE (UNKNOWN:IGTE.DL) surged 7% today after Jefferies upgraded the information technology services specialist from hold to buy.

So what: Along with the upgrade, analyst Jason Kupferberg boosted his price target to $43 (from $39), representing about 18% worth of upside to yesterday's close. So while momentum traders might be turned off by iGATE's year-to-date price sluggishness, Kupferberg's call could reflect a sense on Wall Street that the company's growth prospects are becoming too cheap to pass up.

Now what: Jefferies offered three reasons why iGATE's risk/reward trade-off is particularly attractive: "1) current valuation represents an attractive entry point, in the context of growth [acceleration] for IGTE, which could drive upside to near-term ests, 2) demand environment in US remains healthy and Europe could be another growth catalyst, and 3) recent refinancing increases financial flexibility." When you couple iGATE's hefty debt load and questionable competitive moat with its still-lofty P/E of 30, however, I'd hold out for an even wider margin of safety before betting too heavily on those prospects.