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.

And speaking of the best ...
What do you do when one of the best names in investment banking tells you to buy one of the biggest names in e-commerce? Personally, I listen up. And from what I hear, Credit Suisse has just gone bullish on eBay (Nasdaq: EBAY).

On Thursday, the Swiss megabanker (ranked in the top 10% of investors tracked on CAPS) praised eBay for finally getting quit of its ill-considered Skype acquisition. Arguing that eBay now consists of essentially two businesses -- the "fairly mature" Marketplaces unit and PayPal -- Credit Suisse sees the latter as becoming " increasingly the growth driver for eBay." And after taking a close look at how that growth is going, CS discovered that it's actually exceeding expectations. Having previously predicted PayPal would average 12% annual growth over the long term, CS now believes 14% growth is possible -- upping the stock's potential, and winning eBay a buy rating.

But should you buy eBay?

Let's go to the tape
Initial indications look good. Reviewing the banker's record in both eBay's home market sector of Internet Software and Services and the adjacent Internet and Catalog Retail, we find Credit Suisse hitting it outta the park, accurate on better than 60% of its picks in the former, and 75% in the latter. A few examples:

Of course, even CS isn't perfect. It's continuing skepticism about Baidu (Nasdaq: BIDU) has it underperforming the market slightly on its previous sell recommendations for that stock, while its DVD distaste has racked up a massive 60-point loss to the S&P 500 on Netflix (Nasdaq: NFLX).

And call me a contrarian, call me a Fool, but I think Credit Suisse is wrong about eBay as well. Here's why.

Valuation matters
First and foremost, the price just isn't quite low enough. Selling for 15 times earnings (and with trailing free cash flow almost precisely equal to net income, a price-to-free cash flow ratio to match), eBay looks fairly priced based on consensus growth projections (12.5%). But it's no bargain; not with archrival Amazon generating more cash, growing more than twice as fast, and selling for less than twice eBay's market cap.

I also have reservations about Credit Suisse's logic on this call. Consider: CS thinks PayPal will grow at 14% instead of 12%, and that this acceleration in and of itself justifies upping the whole company to buy. Yet if you examine the company's income statement, you'll notice that PayPal comprises only about one-third of eBay's business, and is considerably less profitable (by a factor of almost five) than eBay's larger Marketplaces unit.

Now, maybe I'm just being pessimistic here, but a two-point move in the growth pace of eBay's smallest, least profitable business just doesn't seem enough to tilt the needle in eBay's favor.

Foolish takeaway
eBay is a stellar commodity, but Credit Suisse has set the reserve price too high on this auction. My advice: Maybe buy it later (if eBay gets cheaper). But definitely look elsewhere right now.

There are still better bargains out there.