Monday'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, our headlines include an upgrade for Hibbett Sports (NASDAQ: HIBB  ) , but downgrades for Finish Line (NASDAQ: FINL  ) and Texas Instruments (NASDAQ: TXN  ) .

Good news first
Let's start off the week on a bright note and take a look at Hibbett Sports, upgraded to "buy" for the second time in as many weeks this morning. Last week, it was analysts at Sidoti touting Hibbett shares with a buy rating and a $65 price target. This time, broker Feltl's joining in the fun with a similar upgrade.

There's just one problem: Both of these analysts are wrong.

Priced at nearly 21 times earnings, but growing at less than 16% per year (projected) over the next five years, Hibbett looks a bit on the expensive side on the surface. The situation looks even worse once you drill down to the cash flow statement, which shows that Hibbett is currently generating only about $0.91 in real free cash flow for every $1 it reports as net income.

Result: Overpriced on its face, Hibbett shares are actually even more expensive than they look, and unworthy of a buy rating.

Is it all over for Finish Line?
Continuing the day's sportswear retail theme, we find Canaccord Genuity downgrading Finish Line to "hold" this morning on worries that

A confluence of issues ... are likely to pressure comp growth and reduce visibility over the next few quarters. These include (1) an increase in promotional activity in running, (2) decelerating price increases, and (3) issues with its new e-commerce website over Black Friday. In our view, these factors will weigh on the stock, capping any near-term upside potential.

So... Finish Line is holding too many sales, is unable to raise prices, and had some problems with its website last month. Not good news, certainly, but does it justify today's downgrade -- and today's small sell-off in the stock?

Unfortunately, yes, it does -- because the situation is even worse than Canaccord describes. Priced below 11 times earnings, and paying a tidy 1.3% dividend, Finish Line shares may look attractive today. But the company's facing the same problems Hibbett is with cash production, and on a much grander scale. With only $8.2 million in positive free cash flow generated over the past year, Finish Line's real "cash profit" is less than 10% of what it claims to be "earning" on its income statement. At a current price-to-FCF ratio of nearly 110, Finish Line can't possibly grow fast enough to justify its current stock price.

In short: If you were upset that Canaccord downgraded the stock today, don't be. Be grateful the analyst didn't say "sell" -- because that's the rating Finish Line really deserves.

Don't mess with Texas Instruments
And last and least, we come to a stock that actually did get a sell rating this morning: Texas Instruments, downgraded to underperform by Sterne Agee today.

Personally, I think that's a bit harsh. With strong free cash flow ($2.7 billion) and only modest debt ($2 billion, net of cash), TI's in pretty fine financial fettle. Valuation on this one, at 13.6 times free cash, isn't exactly cheap (analysts only expect about 10% long-term growth), but with its respectable 2.7% dividend yield, I'd say TI is actually close to fairly valued today.

Long story short, the stock's not a buy by any means. But it may be still worth holding on to at today's prices.

Fool contributor Rich Smith has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above.

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