Tuesday'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 a new buy rating for LogMeIn (NASDAQ: LOGM  ) , and new price targets for Amazon.com (NASDAQ: AMZN  ) and AT&T (NYSE: T  ) . 

Bad news first
AT&T is odd man out this morning, the only company of the three named above that got bad news Tuesday. Specifically, investment banker RBC Capital Markets is tweaking its price target lower this morning. While RBC still expects AT&T to "outperform" the rest of the stock market, the banker now thinks it's going to be a closer race, and says AT&T shares will only hit $38 a year from now.

But even that could be a stretch. Consider: At $34 and change today, AT&T shares already cost more than 45 times trailing earnings. Even if AT&T does generate more free cash flow than its income statement suggests (and it does -- $17.1 billion in free cash flow generated over the past year), that's still a pretty penny to pay for a company that most analysts think will struggle to exceed 6% profit growth over the next five years.

My hunch: RBC's price target revision is only the beginning. Chances are, the next step is for analysts to start rethinking the high price tag on AT&T shares, and hanging actual sell ratings on the shares.

Amazon: Go with the flow?
In happier price-revision news, RBC had nicer things to say about Amazon.com, upping its 12-month target on that one to $300. Unfortunately, RBC is even more wrong about Amazon.

The company already costs $262 a share, so in a sense, RBC's decision to up its target in keeping with its outperform rating was only logical. However, given that Amazon today costs an astounding 3,123 times earnings (and no, I didn't misplace a decimal), the analyst's suggestion that Amazon should cost even more than it does today, rather than less, defies common sense.

Now it's true -- like AT&T, Amazon is a superb cash generator. Over the past year, it's produced more than $1 billion in real free cash flow. But that still leaves us looking here at a company trading for a triple-digit price-to-free-cash-flow ratio (112), but only a double-digit growth rate (32.5% projected annual growth over the next five years).

My take: Amazon.com is a terrific company, and a wonderful business... with a terrible stock price. Whatever the analysts might say, your best bet is to stay away.

Is it too late to LogMeIn?
And finally, we come to the only honest-to-goodness buy rating in today's column: remote access software maker LogMeIn. This morning, Northland Securities initiated coverage of the company with an outperform rating and a $28 price target. Investors seem to like the idea, sending LogMeIn up as much as 11% on the news.

But isn't LogMeIn, like Amazon, simply too expensive to touch?

I don't think so. (In fact, I own the stock myself). While it's true that at 178 times earnings, LogMeIn looks dreadfully expensive, it's also true that LogMeIn is yet another of those fabulous businesses that -- like AT&T, and like Amazon -- generates far more cash than its income statement lets on. Belying the company's $3.4 million in trailing "net profits," LogMeIn's cash flow statement shows that the company actually generated some $26.6 million in real cash profits over the past year.

Now, when you compare this number to the company's $368 million enterprise value, it works out to an EV/FCF ratio of just 13.8 -- entirely reasonable given that most analysts expect LogMeIn to grow its profits at a rate in excess of 22% per year over the next five years.

In short, LogMeIn shares, up 11% on news of today's analyst endorsement, could still have quite a ways to run.

Fool contributor Rich Smith owns shares of LogMein. The Motley Fool owns shares of Amazon.com. Motley Fool newsletter services recommend Amazon.com.

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