This Just In: Upgrades and Downgrades

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'll be tracking the long-term performance of Wall Street's best and brightest -- and its worst and sorriest, too.

And speaking of the best ...
Shares of blue-collar for-profit educator Universal Technical Institute (NYSE:UTI) fell in early morning trading today, hit by a downgrade to "underweight" from investment banker Lehman Brothers. To whom I say: Join the club.

I've argued for quarters on end that this stock -- a former two-time recommendation at Motley Fool Hidden Gems, I might add -- is not all it's cracked up to be. Given the rising advertising costs, falling enrollment, and a total lack of free cash flow, the business just doesn't appear to be executing a turnaround, the expectation of which won it a pair of recommendations from Fool co-founder and certified Gem-ologist Tom Gardner. With the stock now lagging the S&P 500 by a good 10 points over the past year, Lehman Brothers is now finally coming to the same conclusion. It's a bit late to the party, granted -- Banc of America Securities figured this out eight months ago -- but better late than never.

How sure are you of that?
That's a fair question. After all, experience tells us that the moment analysts turn pessimistic on a stock is often the right time to buy. But there are analysts, and then there are analysts. Before we reflexively lump Lehman in with the other contrarian indicators of the investment banking world, let's take a look at its specific record and give Lehman a chance to defend itself.

As it turns out, Lehman isn't a half-bad stock picker. In fact, with a CAPS rating of 88.48, it actually ranks among the CAPS All-Stars, helped by decisions such as:

Of course, that's just Lehman's record overall. When you drill down to how it's performed in the world of nonprofit education in particular, Lehman's record begins to lean a little more toward the "failing" side of the pass/fail equation:

That adds up to an accuracy record no better than that of a flipped coin -- and significantly greater losses when Lehman picks tails as opposed to heads.

Foolish takeaway
I remain pessimistic on the stock. Universal Technical still isn't generating any cash profits. It's still building capacity to house students who seem uninterested in attending. And its 23 trailing price-to-earnings ratio still looks a bit rich for a firm expected to grow its profits at less than 16% per year over the next five years.

All that said, the table above suggests that brighter days may lie ahead for Universal Technical shareholders. When an analyst does as badly as Lehman does on its "underweight" ratings, its rating your stock as a sell just might be cause for rejoicing.