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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 track the long-term performance of Wall Street's best and brightest -- and its worst and sorriest, too.

Look out below ...
Spring is in the air, and up in New York City, the wildebeests are feeling frisky. Earlier this month, we saw Barclays Capital upgrade shares of Yahoo! (Nasdaq: YHOO  ) despite the stock's apparent wild overpriced-ness. Now it seems that the folks at Citigroup have caught Barclays' scent -- because they just issued an upgrade of their own.

I've written before about how badly things turn out when analysts start running in herds. But a Fool can always wonder: "Is this time different?" Let's find out.

Let's go to the tape
When Barclays shouted "Yahoo!," investors cheered -- and with good reason. The analyst has a stellar record as tracked by CAPS on stocks with Yahoo-like traits, boasting market-crushing returns on stocks such as tw telecom  (Nasdaq: TWTC  ) and Google (Nasdaq: GOOG  ) . In contrast, Citi's performance in Internet and media has been more of a hit-or-miss affair:


Citi Says:

CAPS Says:

Citi Picks Beating (Lagging) S&P by: (Nasdaq: SOHU  )



42 points




23 points

Disney (NYSE: DIS  )



(17 points) (Nasdaq: NTES  )



(127 points)

And more generally, while Barclays consistently ranks among "Wall Street's Best" stock pickers as scored by CAPS, Citi is usually happy to just break into the top 20% ranks. As far as its accuracy goes, Citi gets just more than 50% of its recommendations right. Sadly, I fear Citi's latest recommendation has significantly less than a 50% chance of making the cut.


Stated plainly: Because the numbers still don't work. We're still looking at just $750 million in trailing free cash flow on a $23 billion stock, folks. That's a 30 times price multiple to free cash (and a 26 times enterprise value-to-free cash flow multiple, EV/FCF), on a stock that consensus expectations peg to grow no faster than 17% per year over the next five years.

To hear Citi tell it, this is not just a good price, but a great price based on the observation that "[Yahoo!'s] EBITDA and [free cash flow] valuation carries no material premium to the traditional large cap media stocks." Without knowing what Citi considers a "traditional large cap media stock," however, I can't really dispute that point. But here's something we can put to the test: Citi argues that this price offers "one of the lowest EBITDA and FCF multiples of the large cap 'Nets'" -- and I can't see how this can be true.

Google, for example, sells for just 17.8 times EV/FCF (and is expected to grow faster than Yahoo!). Microsoft (Nasdaq: MSFT  ) is expected to grow more slowly, but sells for only 11.7 times EV/FCF (and has a bigger cash stash than Yahoo!). And all three trade for almost exactly the same EV/EBITDA ratio.

Foolish takeaway
To my Foolish eye, both Google and Microsoft bring to mind Warren Buffett's famous yardstick for measuring an investment. When you find a great company trading at a good price, you buy it.

Sadly, Yahoo! is neither.

Google, NetEase, and Sohu are Rule Breakers recommendations. Disney is a Stock Advisor recommendation. Disney and Microsoft are Inside Value picks.

Fool contributor Rich Smith does not own (or hold a short position in) any stock named above -- and per the Fool's gold standard disclosure policy, he cannot trade in any such stock for at least 10 days after this article posts. That's just how we roll at the Fool. You can find Rich on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 964 out of more than 135,000 members.

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