UPDATE: Morgan Stanley Upgrades Vale SA on Compelling Risk-Reward

In a report published Wednesday, Morgan Stanley analyst Carlos De Alba upgraded the rating on Vale SA (NYSE: VALE) from Equal-Weight to Overweight, but lowered the price target from $18.00 to $17.50.

In the report, Morgan Stanley noted, “We see 33% upside to our price target, with a 3:1 bull/bear skew. The stock trades at 6.7x 2014e EPS, or ~22% below its historical average. Further, with a 6.3% dividend yield this year, we see a good buying opportunity at current levels. We forecast Vale's ROE will improve to 16% in 2014 from 10% in 2013, supported by management efforts to divest non-core assets and reduce costs. The stock has underperformed other major miners by 18% in LTM and we believe such underperformance is unlikely to continue.”

Vale SA closed on Tuesday at $13.61.