What Is an Upgrade?
An upgrade refers to the positive change in an analyst's outlook of a particular security's valuation based primarily on that security's improving fundamentals.
Key Takeaways
- An upgrade refers to the positive change in an analyst's outlook of a particular security's valuation based primarily on that security's improving fundamentals.
- An upgrade to a specific security is usually triggered by qualitative and quantitative information that contributes to an increase in the financial valuation of that security.
- The biggest benefit of an upgrade is that it lowers a company's cost of capital, for both debt and equity.
Understanding an Upgrade
An upgrade to a specific security assigns it a higher ranking and is usually triggered by qualitative and quantitative information that contributes to an increase in the financial valuation of that security. In the context of portfolio management, the term "upgrade" also refers to a strategy whereby the risk profile and quality of the portfolio are improved by including blue chips in it while eliminating speculative stocks.
Upgrades to investment ratings for stocks and fixed-income securities are issued by equity and bond analysts at their respective brokerage houses. Upgrades to the credit rating of corporate issuers of debt securities are issued by rating agencies, such as Standard & Poor's.
For example, a rating agency may upgrade the credit rating of an issuer from AA+ to AAA. Such a move would have a positive effect on all outstanding bonds and other fixed-income instruments of the issuer.