Get to Know a Guru

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." In our recurring column, "This Just In," we cover the most headline-worthy upgrades and downgrades, testing the analysts' logic and examining their records to help you decide whether they're worth listening to at all.

In "Get to Know a Guru," we go another route. Here, we use upgrade and downgrade news as a springboard to introduce you to some of the lesser-known names in analyst-land. Up this week: Kevin Dann.

Profiles in punditry
An unfamiliar name (to me, at least) popped up on MSN Money's tally of analyst upgrades and downgrades this week. A firm called "Kevin Dann" was highlighted as upgrading to "buy" the stock of auto parts and accessories retailer AutoZone (NYSE:AZO). Now, if you're wondering whether "Kevin Dann" is a person or a firm, you're not alone.

As it turns out, Kevin Dann is both. While unfamiliar to yours Fool-y, Dann's is a name that carried some weight up on Wall Street once upon a time. According to a Business Wire article I pulled up on the Internet, he began his career with a 17-year stint at Jefferies & Co., then spent two years as the managing director and head of the equity trading desk for Soros Funds Management LLC -- both names I imagine most of us are familiar with.

Dann set up his own shop, Kevin Dann & Partners, in New York City and San Francisco just as the tech bubble was bursting in 2000. His aim was to "make the trading skills and acumen of one of the most successful, experienced, and talented traders in the business available to hedge funds and investment firms in general who choose to outsource the function rather than have executions done in-house." Modest, eh? But wait -- it gets better. Dann was quoted at the time boasting, "I expect to have one of the best agency trading desks on the Street in a very short period of time."

Are these guys any good?
So much for the firm's biography. We really want to know how things worked out with that last statement. Did Dann indeed become "one of the best"?

Um, not exactly. With the caveat that Dann's business model may well require that few of its best picks are ever published, the ones that have been publicized on Briefing.com have not fared well at all. (Nor, one presumes, have the individual investors who relied on Dann's "trading skills and acumen.") As a matter of fact, nearly two out of three of Dann's published recommendations go horribly wrong, and the 17 picks we now have on record are underperforming the market by an average of nine points apiece. For example:

Of course, every dog has its day. Dann's good days occurred when it recommended:

Separating the analyst from the analyzed
There's no sugarcoating the truth -- Dann's published picks are badly underperforming the market. But on AutoZone, I happen to think this analyst finally has a chance to add to its winners column. A former Motley Fool Inside Value recommendation (sold four months and $15 ago), AutoZone trades at an entirely reasonable price today: 14 times trailing earnings, and 13 times trailing free cash flow.

With profits growth projected at 12% per year over the next five years, it's not the kind of screaming bargain we like to keep on the rolls at Inside Value, of course. But could it go up from here? Sure it could. The price seems entirely fair for the No. 2 player in this industry, especially when you note that AutoZone earns an operating margin twice as fat as that of one of Dann's other winners, Genuine Parts.

Still, with Dann forming up as a kind of "contrarian indicator" on stocks (especially auto parts stocks, since the firm is one-for-three in this sector), Dann's endorsement may make you want to think twice about paying a fair price for AutoZone. To learn why the folks at Inside Value decided to bail on the stock in April, click here to give the service a spin and learn the reasons behind our sell recommendation.

Fool contributor Rich Smith does not own shares of any company named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 291 out of more than 60,000 players. The Fool's disclosure policy is always humble.