Friday's Top Upgrades (and Downgrades)

This series, brought to you by Yahoo! Finance, looks at which upgrades and downgrades make sense, and which ones investors should act on. Today, we'll be looking at analyst action on two popular consumer-brand stocks -- Panera Bread (Nasdaq: PNRA  ) and Nike (NYSE: NKE  ) , with a little bit of coal analysis just for fun. Let's dig in!

But where should we eat?
Investors today are all wrapped up in the news that burrito-meister Chipotle (NYSE: CMG  ) just delivered a 35% profits increase on a 26% rise in revenue year over year. Be that as it may, Wall Street sees a tastier bargain across the street at Panera. Analyst Miller Tabak today reiterated its hold rating on the stock, and while that doesn't sound too exciting, get a load of what Miller says Panera's worth: upward of $175 a share.

That's quite a premium compared to the $151 and change that Panera shares fetch today. It's also an 11% increase over the $158 price target that Miller had on the stock just yesterday. But it does raise the question: If Panera's worth so gosh darn much, why only rate it a hold?

Best guess: Miller's expecting a blowout -- profits akin to what Chipotle just produced -- in Panera's upcoming earnings report Tuesday. Such a surprise could well lift the stock price, as Miller's new target suggests. And yet, priced at 33 times trailing earnings, Panera shares look richly valued already for the 19% long-term growth that Wall Street expects the company to produce. Blowout or no blowout, the stock's priced for perfection, and likely to crash at the first sign of disappointment. "Hold" at your peril.

Nike: Ready to run?
Speaking of stocks getting ready to come unlaced: Nike. This morning, analysts at The Benchmark Company announced they're "initiating" the company with a buy rating and a $128 price target. But once again, the numbers just don't add up.

Even at today's $111 share price, Nike costs more than 23 times earnings, which seems a bit much for a company expected to grow at just 13% long-term. Adding to the worry, Nike's quality of earnings has deteriorated markedly of late. As recently as 2010, Nike was generating about $1.48 per share in free cash flow for every $1 it reported as GAAP net income. But even as this "income" has surged, the amount of actual cash underlying the accounting profits has fallen. Over the past 12 months, actual free cash flow dropped to a mere $0.55 per $1 in reported profit.

In other words, as expensive as Nike looks on the surface, it's even more overpriced underneath.

Meet Mr. Peabody
Is this all starting to sound a bit depressing? Well, take heart, investor, because today's cache of ratings news does contain a glimmer of hope, and from an unlikely source: coal. We all know how coal's gotten the shaft lately, burnt by decade-low natural gas prices that have made it cheaper to produce electricity from gas than from rocks. But here's the good news: According to banker Howard Weil, all the pessimism about coal has turned Peabody Energy (NYSE: BTU  ) in particular into a bargain.

At a share price just 8.5 times trailing profits, Peabody is expected to grow at better than 11% per year going forward. It also pays a tidy 1.2% dividend. Best of all, in the company's recent earnings news, Peabody confirmed that cash production surged 79% in the first quarter, surpassing even reported operating profit. This has Howard Weil thinking that the stock's poised to outperform the market by a wide margin, perhaps rising as far as $51 a share over the course of the coming year -- a 70% increase from today's prices.

That's the kind of prediction that could spark a short squeeze... and turn a lump of coal into a real diamond in the rough.

Fool contributor Rich Smith holds no position in any company mentioned. The Motley Fool owns shares of Panera Bread and Chipotle Mexican Grill. Motley Fool newsletter services have recommended buying shares of Panera Bread, Nike, and Chipotle Mexican Grill. Motley Fool newsletter services have recommended creating a bear put spread position in Chipotle Mexican Grill and a diagonal call position in Nike.

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