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 Quality Systems, (NASDAQ:NXGN) gained about 1% in premarket trading after Topeka Capital initiated coverage on the medical records software technologist with a buy rating.
So what: Along with the bullish call, analyst Eugene Mannheimer planted a price target of $19, representing about 27% worth of upside to yesterday's close. So while momentum traders might be turned off by Quality Systems' sharp year-to-date pullback, Mannheimer's call could reflect a sense on Wall Street its turnaround prospects are becoming too cheap to pass up.
Now what: According to Topeka, Quality Systems' risk/reward trade-off is rather attractive at this point. "Despite its fall from grace since 2012, we believe the Company has found its footing and is positioned for resumption of growth in FY15 (March), driven primarily by recent acquisitions like Mirth and expansion of its revenue cycle management (RCM) footprint," said Mannheimer. "Our forecast calls for 6% and 7% top-line growth in years FY15 and FY16 respectively, but R&D investments in 'modernizing' and integrating its products will mask any leverage otherwise generated." When you couple that upbeat outlook with Quality Systems' juicy 4%-plus dividend yield, it's tough to disagree with Topeka's bullishness.
Brian Pacampara has no position in any stocks mentioned. The Motley Fool recommends Apple and Quality Systems. The Motley Fool owns shares of Apple. 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.