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 its worst and sorriest, too.

And speaking of the best ...
Good news has been hard to find lately for Synchronoss Tech (Nasdaq: SNCR) shareholders. The "premier provider of on-demand transaction management software" (their words, not mine) has seen its share price cut in half since a year ago. But as ace stockpicker Brean Murray observed earlier this morning, most of these losses occurred on one single, terrible day in May -- and Brean thinks that was an overreaction.

As you probably remember (even if you'd rather not), Synchronoss warned last month that it would earn barely half what Wall Street expects of it this quarter -- a consequence of people unlocking Apple (Nasdaq: AAPL) iPhones, and using them on networks other than AT&T (NYSE: T). When this happens, Synchronoss loses revenue it expected to earn when customers activated iPhones for use on the AT&T network -- hence the lower-than-expected profits. But according to Brean, "Synchronoss has signed new customers and taken key initiatives to expand and diversify its iPhone and AT&T dependency, which ... will increasingly benefit the company over upcoming quarters."

Let's go to the tape
Before we examine the validity of that statement, let's first quickly review Brean's record. Brean's record of 55% accuracy may not impress you, but consider: Picking stocks right consistently isn't as easy as it looks. Just four points over breakeven is good enough to rank Brean in the top 10% of CAPS investors. Since we began tracking its performance, Brean has made such brilliant tech recs as:

Company	Brean Said:	CAPS Says (Out of 5):	Brean's Pick Beating S&P By:
Harmonic (Nasdaq: HLIT)	Outperform	****	14 points
Western Digital (NYSE: WDC)	Outperform	****	123 points

Then again, Brean has also made some really boneheaded picks:

Company	Brean Said:	CAPS Says (Out of 5):	Brean's Pick Lagging S&P By:
KongZhong	Outperform	****	39 points
Syntax-Brillian	Outperform	**	91 points

But is Brean right this time? Actually, I think it is -- but I also think Brean is right for the wrong reasons.

According to Brean, Synchronoss is worth buying because it's taken steps to diversify its revenue stream and decrease iPhone-centric risk. Which sounds good, but is contradicted by Synchronoss' own most recent 10-Q filing. Therein, we read that: "For the three months ended March 31, 2008, AT&T accounted for approximately 72% of our revenues, compared to 68% for the three months ended March 31, 2007." In other words, in the first quarter, Synchronoss has become more, not less, dependent on AT&T.

In a similar vein: "Our five largest customers, AT&T, Vonage, Level 3 Communications (Nasdaq: LVLT), Comcast (Nasdaq: CMCSA) and Cablevision, accounted for approximately 93% of our revenues for the three months ended March 31, 2008, compared to 92% of our revenues for the three months ended March 31, 2007." So, for the quarter, it's also getting more top-heavy among its top five customers.

Foolish takeaway
Unless Brean knows something we don't (as well it might), something that Synchronoss has not seen fit to inform us of, the company's revenue appears to be more dependent than ever on an increasingly unreliable iPhone revenue stream.

That said, I have to admit that the stock's valuation is tempting. Trading for just 19 times trailing earnings, but expected by most analysts to grow those earnings at 31% per year over the next half decade, Synchronoss looks cheap. If you choose to follow the analyst's advice today, and buy the stock based on its low valuation alone, I think that would be a perfectly reasonable response.