Thursday'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 upgrade for CBS (NYSE: CBS  ) , but it's bad news for pizza bakers and plane makers, as Yum! Brands (NYSE: YUM  ) and Boeing (NYSE: BA  ) suffer downgrades. Let's dive right in, beginning on a bright note as...

CBS wins a (small) ratings war
Our first notable ratings move of the day concerns CBS, which this morning scored an upgrade to outperform from analysts at Wedbush. More significant than the upgrade per se is Wedbush's revision of its per-share price target for CBS: The banker is upping the stock's target by nearly 40%, from $36 to $50.

Now, at first glance this may seem nonsensical. After all, at a P/E ratio of nearly 18 but a projected earnings growth rate of just 14%, CBS' stock looks fairly valued -- maybe. More likely, the stock's 1.2 PEG ratio suggests it's actually a bit overpriced, even with a modest 1.3% dividend yield to help even the score.

But Wedbush isn't looking at the P/E ratio. Rather, according to StreetInsider.com, Wedbush was inspired by CBS' announced intention to spin off its outdoor advertising operations in Europe and Asia, and to "convert the Americas outdoor division into a REIT." Crunching the numbers on the breakup value of CBS, Wedbush came to the startling conclusion that once you start valuing each individual CBS-part separately, the tally is much higher than what the sum of CBS' parts currently sells for. Indeed, the REIT alone, says Wedbush, could be worth $8 a share once on its own -- nearly one-fifth of the company's current market cap. No wonder CBS shares are soaring, and up 10% today.

Slice up that pizza!
It gets an investor to thinking: Maybe somebody should think about spinning off a few parts of Yum! Brands, too. Carrying a P/E ratio even higher than CBS (19.2), but a growth rate that's lower (13.4%), Yum looks easily as overvalued as CBS from a P/E perspective -- and probably even a bit more expensive than the TV conglomerate.

This morning, Argus Research reacted to that apparent disconnect between P/E and earnings prospects by downgrading Yum! stock from buy to hold. But in fact, the analysts might want to go even further than that.

Obviously overvalued on the surface, Yum! looks even more expensive the deeper you dig into it. According to the company's cash flow statement, for example, Yum! only generated about $1.2 billion in positive free cash flow over the past year -- just 75% of the $1.6 billion it reported as "net income" under GAAP accounting. Valued on its cash profits, therefore, Yum! stock actually sells for 24.5 times multiple -- far too much for a 13.4% growth rate to support.

Long story short, I'd rather be short this stock than long.

Boeing buy thesis -- busted
Last and currently least, we come to Boeing, which just suffered its second analyst downgrade in as many days. Yesterday, as you may have heard, Goldman Sachs announced that it's pulling Boeing off its "conviction buy" list on worries that the company's Dreamliner issues make the stock a riskier bet than it previously thought.

Goldman still rates the stock a lesser flavor of "buy," of course. But not everyone's so sanguine about the company's troubles. This morning, rival banker BB&T announced that it is throwing in the whole towel, and cutting Boeing shares to "underweight" (Wall Street-speak for "sell"). Is it right to do so?

Maybe not. From a numbers perspective, Boeing certainly looks good. The stock's got a P/E ratio of only 13, alongside a 12% growth rate and a temptingly high 2.5% dividend yield. In any other circumstances, I'd say these numbers justify a pretty strong buy rating for a company as dominant as Boeing. It's the unknowns, though, that worry me.

Can Boeing fix its electrical, and other problems, with the Dreamliner? Can it do so before customers begin canceling their orders for the plane? Will the FAA sign off on the fix? Most crucially of all, will Boeing even have engineers available to make progress on this problem, seeing as it seems intent on provoking a labor strike by its SPEEA engineers union?

Given all the open questions, it's hard to consider Boeing much more than a hold right now. And BB&T might be right: Boeing just might be a sell.

Fool contributor Rich Smith has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

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