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...
AeroVironment (NYSE: AVAV  ) shareholders got a double dip of Wall Street goodness yesterday, as two separate analysts discovered the company's existence -- and voiced hearty approval. First, C.K. Cooper initiated coverage of the stock with a "buy" rating. As far as I know, no major news outlet has any further details on this rating. Fortunately, rival brokerage Benchmark wasn't so reticent.

On the one hand, Benchmark argues: "AV will be a key beneficiary of the Pentagon's plan to deploy more military drones in the coming years. We like AV's leading position in the Small Unmanned Aircraft Systems (UAS) market and believe the company is well-positioned to grow double-digit over the long-term..."

At the same time, the analyst believes: "AV's energy business has potential to double in size from expansion into electric vehicle battery charging. Nissan (Nasdaq: NSANY  ) recently selected AV to supply electric vehicle home-charging stations for the all-electric Nissan LEAF later this year." Given AV's strategic partnership with Toyota (NYSE: TM  ) in forklift batteries, two out of the three major Japanese car companies are now cooperating with AV.

I agree.

Let's go to the tape
Now, admittedly, I do have some "issues" with both of these bullish calls on AeroVironment. Let's start with C.K. Cooper, one of the lowest-ranked analysts we track on CAPS.

Cooper has an anemic record, with its limited experience in the Aerospace sector yielding just a 50-50 split to date. Cooper's beating the market on this month's bullish Boeing (NYSE: BA  ) bet, while last month's endorsement of Raytheon currently lags the S&P's performance. However, after making its AeroVironment call yesterday, it's up an additional nine points. Cooper also has a negative score on CAPS, but the good news here is that it's suffering more from bad bets made in the oil patch -- a 16-point loss-to-the-market on Gulfport Energy (Nasdaq: GPOR  ) for example, and a monster 43-point deficit on ATP Oil & Gas (Nasdaq: ATPG  ) -- than from anything to do with aerospace or defense. In fact, across the several sectors it covers, C.K. Cooper gets most of its ratings right.

Benchmark's record is even better. With accuracy verging on 62%, this broker outperforms 95% of the investors we track on CAPS, and ranks among the best analysts on Wall Street. (On the other hand, Benchmark's record in aerospace and defense is just as sparse as Cooper's, and both of its previous picks, American Science & Engineering and Cubic, are currently in the red.)

And yet...
So why do I believe these analysts are actually right about AeroVironment? Well, I own the stock myself. But in fairness, I also panned the company's performance just a few weeks ago, criticizing its turn from positive to negative on the free cash flow front, and its questionable attribution of last quarter's sales slump to "severe weather conditions" that delayed acceptance testing of its Raven UAVs.

In this case, though, the analysts have hit the nail on the head. As Benchmark points out, the difficulties AeroVironment encountered in 2009 and 2010 are less important than the vast potential for improvement in years to come.

For months, we've heard rumors that a deal to sell AV's new Switchblade UAV to the military was imminent. It hasn't arrived yet, but it could arrive at any time. And as I've previously argued, the introduction of the self-destructing Switchblade into the military's arsenal could be a real game-changer for AV -- its first "disposable" UAV.

For nearly as many months, we've been awaiting details on Nissan's introduction of the Leaf electric car into production. We knew the Leaf, Nissan's answer to GM's Volt and Ford's (NYSE: F  ) electric Focus, was ready to drop -- but we had only a vague impression of its price tag. Yesterday, the same day AV received its buy ratings, Nissan announced that it will begin taking reservations for the Leaf in April, begin U.S. deliveries in December ... and hire AeroVironment to build the charging stations for everyone in the U.S. who buys or leases a Leaf.

Best of all, Nissan is pricing the Leaf at less than $33,000 in the U.S. With federal and state subsidies, could push the price as low as $20,000 in some markets.

Foolish takeaway
I think that's a price low enough to attract a lot of buyers -- and not just "green" buyers, either. With U.S. production planned to center on Smyrna, Tennessee, I think a $20,000 Leaf will garner its fair share of dyed-in-the-wool red, white, and blue buyers as well -- and every man jack of 'em is a potential sale for AeroVironment, as it builds the charging stations for Nissan. Combined with the eventual arrival of the novel Switchblade, and building on AV's stable of already popular small UAVs, the potential here is clear.

Now we wait, and see whether AeroVironment can fulfill it.

American Science & Engineering and AeroVironment are Motley Fool Rule Breakers selections. Cubic and Ford are Motley Fool Stock Advisor picks.Fool contributor Rich Smith owns shares of AeroVironment. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 690 out of more than 160,000 members. The Motley Fool has a disclosure policy.


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