This Just In: Upgrades and Downgrades

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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.

What's that sound?
The bullish beat on Accenture (NYSE: ACN) continues to grow louder. Last week, we took a look at how the company's faring after hitting its 52-week high, and whether Goldman Sachs was right to upgrade the stock at that point. (It was.) Now we learn that yet another analyst is hopping aboard the Accenture train, with All-Star analyst Janney Montgomery Scott initiating coverage at "buy" this week.

Janney's bullish beat should sound familiar:

• Accenture's plan to spend $4.9 billion buying back stock will improve earnings per share-strength for the stock.
• The company's massive treasure trove of $4.5 billion in cash, bolstered by strong free cash flow of approximately $2.9 billion last year, provides ample funds to conduct the buybacks ...
• ... while leaving plenty of cash left over to fund a tidy 2% dividend for shareholders.

And yet, with Accenture's profits on the wane, Fools may well wonder whether Janney's timing is off on this one. Is now really the time to buy into Accenture, or should we wait until conditions improve a bit first?

Eat, drink, and be Janney
Judging from the analyst's record, I'd be inclined to follow Janney's advice on this one. While it's true that Janney's most successful recommendations tend to hail from the food and entertainment industries ...

Stock	Janney Says	CAPS Says	Janney's Picks Beating S&P by
Green Mountain Coffee (Nasdaq: GMCR)	Outperform	***	252 points
Marvel Entertainment (NYSE: MVL)	Outperform	****	65 points
Netflix (Nasdaq: NFLX)	Underperform	**	16 points

... this banker is no slouch when it comes to picking IT shops either:

Stock	Janney Says	CAPS Says	Janney's Picks Beating S&P by
Wright Express	Outperform	***	112 points
Online Resources	Outperform	***	23 points
Global Payments	Outperform	****	27 points

In fact, Janney currently scores 71% for accuracy in this industry, helping to lift the analyst into the elite top 15% of investors we track on CAPS.

So when Janney tells us that: "Accenture's consulting practice (58% of net revenue) provides the company with a distinct competitive advantage," and that: "Outsourcing revenue (42% of net revenues) should support results over the short term until the consulting practice picks up in calendar 2010," I think there's probably merit in that argument.

After all, there's a reason that global giants from IBM (NYSE: IBM) to Hewlett-Packard (NYSE: HPQ) to Dell (Nasdaq: DELL) and Xerox have been ramping up their presence in consulting and outsourcing -- and it's not because they see an industry in decline. So what is it that everyone seems to like about the IT game? In Accenture's case, I've got a few thoughts:

• Accenture earns a beefy 12.5% operating margin on its business, and generates simply superb returns on equity -- north of 58%.
• It also churns out cash by the truckload -- $2.9 billion last year alone, with another $2.1 billion to $2.3 billion projected for this year.
• Capital requirements are not insignificant, but at less than half the company's reported depreciation and amortization levels, guarantee that this company will generate much more cash -- and most likely, be much more profitable -- than initially meets the eye. And as more and more investors catch on to this fact, this should help boost the stock.

Foolish takeaway
In short, there's a reason that so many of Wall Street's finest analysts like Accenture: Simply put, there's a lot to like about the company.

Me, the thing I like best is the price. Valued at an enterprise value of less than 10 times the amount of free cash flow the company will churn out this year (and remember that by all accounts this will be a "bad" year), yet expected to emerge from the recession and enjoy 13% annual long-term growth, Accenture is priced to move. My advice: Grab your ticket and don't miss this train.