This Just In: Upgrades and Downgrades

At The Motley Fool, we poke plenty of fun at Wall Street analysts and their endless cycle of upgrades, downgrades, and "initiating coverage at neutral." So you might think we'd be the last people to give virtual ink to such "news." And we would be -- if that were all we were doing.

But in "This Just In," we don't simply tell you what the analysts said. We'll also show you whether they know what they're talking about. To help, we've enlisted Motley Fool CAPS, our tool for rating stocks and analysts alike. With CAPS, we'll be tracking the long-term performance of Wall Street's best and brightest -- and worst and sorriest, too.

And speaking of the best ...
Shares of Motley Fool Stock Advisor pick Shuffle Master (NASDAQ:SHFL) got kicked down the stairs yesterday, and are still tumbling as of this writing. The catalyst? Actually, there were four or five. First, the company announced it will have to restate its full-year and Q4 earnings results because of an error in accounting for inventory purchased from its wholly owned subsidiary, Casinos Austria Research & Development. Second, and related to the first, the firm pretty much confirmed its earlier warning that it will most likely miss analyst earnings targets for Q1 2007. Third, fourth, and fifth: A slew of Wall Street analysts issued some pretty pessimistic comments on those first and second bits of news.

The comments included a pair of analyst downgrades, with Jefferies & Co. removing its "buy" rating and telling investors to "hold," and Bear Stearns reportedly (which is to say, according to AP -- this is not yet showing up in the briefing.com tally) going a step further, knocking Shuffle Master down one step from a "hold" equivalent to something closer to a "sell" rating. Jefferies complained of a lack of "visibility into Macau placements on the electronic table games or shuffler side," and warned that electronic table games, at least, are not doing well there. Bear reportedly based its sell rating more on the restatement.

On the bright side, Stifel Nicolaus reiterated its "buy" rating on the stock -- but you could practically hear the grinding of teeth as it did so. Although Stifel still sees a chance for Shuffle Master to turn its business around (or perhaps become an target for acquisition at a premium), it expressed real concern about a loss of management credibility in the face of the restatement. Adding to the confusion of this mixed picture, two other analysts have apparently weighed in, unreported by the media. According to briefing.com, both Prudential and Brean Murray sided with Stifel in reiterating their buy ratings.

My head hurts ...
Yeah, mine too. It's not going to be easy to make sense of all this, but with the help of CAPS, I'll give it a try. Let's start by taking the five firms named above, and figuring out which ones have the best stock-picking records:

As usual, Stifel Nicolaus remains top of the heap (having done these columns for over a month now, I'm noticing that this firm often winds up there in any ranking of peers), so ordinarily, I'd be tempted to go with its "buy" call on Shuffle Master.

Ordinarily?
Right, just ordinarily. This time, I'm more cautious for several reasons:

• First, Stifel's got a really bad record on Shuffle Master. Since Stifel rated it a buy back in June, the stock has underperformed the S&P by 56 percentage points.
• Second, Stifel's in bad company today. The other two firms that reiterated buy ratings -- fine firms, overall, with impressive records as "all-star" CAPS players -- sit at the bottom of today's list.
• Third and finally, earlier this month, Motley Fool Stock Advisor co-lead analyst Tom Gardner beat all five of these analysts to the punch, discussing Shuffle Master's situation in his monthly update on our portfolio recommendations. Said Tom: "Shuffle Master's strategic plans aren't sufficiently lined up at the moment, and I don't see this as a buying opportunity. The company simply has to work through its integration issues and improve operations before it becomes an attractive place to invest additional funds."

Although Tom is right there with Stifel in arguing that Shuffle Master remains a long-term winner, it sounds to me like he's saying there's no immediate need to buy more of this stock until it shows signs of getting its problems worked out. Considering the analysts' records, and considering Tom's own record at Stock Advisor -- where his picks are beating the S&P by an average of 37 percentage points over the last five years -- I think discretion is the better part of value for Shuffle Master investors today.

Analysts and Fools aside, who's got the best record of all on Shuffle Master? Visit CAPS to learn the identity of the mystery score leader on this stock, and find out whether he (she?) thinks it's a buy at today's prices.

Fool contributor Rich Smith does not own shares of any company named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked 27 out of more than 24,000 raters. The Fool has a disclosure policy.