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

Starbucks: Full-bodied or decaf?
Starbucks (NASDAQ:SBUX) stunned the skeptics with a blowout earnings report Wednesday evening, setting the stage for a "green" day in a "red" market yesterday. But now that it's booked its well-deserved gains, some analysts are starting to rethink the stock's value.

Jesup & Lamont, for one. While acknowledging that Starbucks "exceeded both our $0.23 estimate and the $0.28 consensus estimate," posting "the strongest consolidated comp gain in eight quarters," Jesup fears that at today's price, there's a significant "risk of a disappointment from here." So even as Jes-upped its 2010 earnings estimate to $1.07 per share, and predicted $1.15 next year, the analyst pulled its "buy" rating on Starbucks and downgraded the stock to "hold."

Not everyone's nervous about Starbucks. Wednesday's news reinforced Piper Jaffray's opinion that the business is "hitting on all cylinders," and earned Starbucks a reiteration at "overweight." Most impressed of all was Deutsche Bank, which praised the company for "underpromising" and "overdelivering." Citing: "Positive comps, better margins, cash flow growth and a solid runway abroad and with VIA," Deutsche called Starbucks' "resurgent growth ... nothing short of remarkable" -- and deserving of an upgrade to "buy."

The verdict is in
So that makes ... let's see ... two votes for Starbucks, and one against. A clear case for buying the stock, you say? Well, before you decide, consider this: Of the three analysts weighing in on Starbucks, one has by far the best record on restaurant stocks like Starbucks ...

Is it new cheerleader Deutsche Securities? 'Fraid not:

Actually, this banker's record in the Hotels, Restaurants and Leisure sector stands at an anemic 22%. While Deutsche has picked the odd winner here and there -- a McDonald's recommendation made back in 2007, and a Yum! Brands (NYSE:YUM) endorsement that's even older -- overall, this banker's a laggard.

What about longstanding Starbucks fan Piper Jaffray? Here, the record's better. While best-known for its semiconductor picks, which include big winners like Cree (NASDAQ:CREE) and LDK Solar (NYSE:LDK), Piper's also sporting 50% accuracy in the restaurants sector, and its Starbucks recommendation is in the green so far. Still, even Piper isn't the best restaurant picker-outter on our list. That particular honor goes to Jesup & Lamont, boasting 71% accuracy in the sector:

Now, here's the bad news: Jesup also happens to be the one most down on Starbucks' prospects. And the worse news: Jesup just might be right.

Buy the numbers?
Listen, Fools: I don't hate Starbucks. Far from it. I actually admire how the company's turned itself around and begun brewing up strong free cash flow. According to Wednesday's earnings report, management thinks it's on track for its first-ever $1 billion free cash flow year -- superb! The fact that it's also posting comps gains in an economy like this one is to be commended.

But just because the business is going gangbusters doesn't mean the stock is priced right. To the contrary, with Starbucks shares selling for 17.5 times its own best guess at this year's free cash flow number, and five-year growth posited at 16.4% per year, Starbucks' stock looks only fairly valued to me. Not bad enough to require selling it short -- but not good enough to justify a caffeine-fueled buying spree, either.

Foolish takeaway
Personally, I'd be taking Jesup's advice at today's price: If you've profited from the 157% run-up Starbucks enjoyed over the past year -- pat yourself on the back. If you haven't yet gotten in on Starbucks -- make a mental note of how well the business is doing, put the stock on your watch list, and wait for it to go on sale again.

As this week has reminded us, stocks really can go down as well as up. Patience, Grasshopper. Your opportunity will come.