BNP Paribas upgrades ComfortDelGro (C52.SG) to Buy from Hold and raises its target price to $1.98 from $1.63; the new target implies a 2011 P/E of 16.5s, a slight premium to its historical average, “which can be justified by the improved medium-term growth prospects.”

It says the investment merits of the stock have now reached an inflection point on both fundamental and technical fronts; BNPP cites recent developments such as 1) CD’s reduction of fuel subsidies at end-December which should buffer margins; 2) stronger-than-expected regional expansion which may surprise inorganic earnings growth; 3) record high COE price (+40% on year) which is likely to be sustained and will increase attractiveness of public transport.

It adds that valuation also looks attractive on improved long term prospects; “on our FY11 estimates, CD trades at 13.6x PER, a 25% discount to its closest peer SMRT” (S53.SG), and a 10% discount to CD’s own historical P/E average of 15.1x.

Shares are +1.9% at $1.62.