This Just In: Upgrades and More Upgrades

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 ...
Everybody loves a hot IPO, right? So it's only to be expected that Financial Engines (Nasdaq: FNGN), which debuted on the Nasdaq in March, and promptly rose 44% in price, should be garnering some praise on Wall Street ... right? So let's all hear it for Piper Jaffray, which this morning took a good hard look at Financial Engines and declared it worthy of buying.

Or not
Investors will certainly cheer (and be cheered by) this buy rating. After all, few analysts on Wall Street boast a record as good as Piper's. The banker ranks near the top 10% of investors we track on CAPS, and has even picked a handful of modest winners among companies analogous to Financial Engines:

Follow the money
But if that was all there was to this story ... well, to be perfectly blunt, I suspect Financial Engines' stock would be going up today, instead of where it is headed: Down. Down as much as 3.4% as of this writing.

You see, Piper's enthusiasm for the stock notwithstanding, there's actually very little to like in Financial Engines' valuation right now. Based on the results it posted in 2009, the company is trading for a hefty 40 times multiple to free cash flow, and more than 100 times reported GAAP earnings. Valuations reminiscent of Google in its heyday -- but Google this ain't.

In fact, as a paid advisor to corporate 401(k) plans, Financial Engines has a whole lot more in common with staid, conservative Morningstar (Nasdaq: MORN) -- which trades at 30 times earnings, or other financial advisors such as Ameriprise (NYSE: AMP) -- selling for 17 times earnings -- or Principal Financial (NYSE: PFG) -- at 16 times -- than with go-go growth stock Google.

What's up, doc?
So what, I ask you, is the real reason for Piper's backing Financial Engines today?

One word: Money
At the risk of being crass, I believe the real reason Piper's so up on the stock is that it has a vested interest in talking the stock up. Piper, you see, was one of four investment bankers that underwrote Financial Engines' IPO back in March. According to the company's S-1 filing with the SEC, Piper agreed to purchase a minimum of 848,000 Financial Engines shares at the IPO -- and potentially as many as 975,200, if it exercised its overallotment option in full.

In other words, Piper has about 15.6 million reasons (in invested dollars) to rev up Financial Engines' stock.

Foolish final thoughts
Now, none of this is to say that I expect the stock to tank -- or that I'm telling you to sell. To the contrary, as big a stake as Piper has in talking up Financial Engines, other bankers -- some with even bigger interests at stake -- have yet to come out of the woodwork with buy ratings of their own:

• Cowen & Co., which bought at least 742,000 shares
• UBS (NYSE: UBS), which owns at least 2.6 million
• And that granddaddy of grandstanding, Goldman Sachs (NYSE: GS), which could have bought as many as 7.3 million shares of Financial Engines at the IPO -- giving it a $117.4 million interest in FinEng's success.

A buy rating by any one of these worthies -- or more likely, by all three -- could certainly restart Financial Engines' motor, and send the stock flying higher still. All I am saying is, before you buy the hype surrounding an upgrade, consider the sources.

They may not have your best interests at heart.