Every day, Wall Street analysts upgrade some stocks, downgrade others, and "initiate coverage" on a few more. But do these analysts even know what they're talking about? Today, we're taking one high-profile Wall Street pick and putting it under the microscope.

Great was the lamentation when Brunswick Corporation (NYSE:BC) reported earnings last week. Brunswick builds yachts, fishing and other boats -- and the engines to power them -- plus sports equipment besides. But business wasn't great last quarter, with sales falling 4% year over year and profits down 7%.

Brunswick "missed earnings" badly last week, sparking a 16% sell-off in its shares. That wasn't good news for Brunswick shareholders, but according to one analyst, it could be great news for new buyers of Brunswick stock. Here's what you need to know.

A sailboat pointing toward the sun

Stormy weather hit Brunswick stock last week, but could it be smooth sailing from here on out? Image source: Getty Images.

What Brunswick said

That Brunswick "missed earnings" last week was the headline news that sparked the sell-off. As the Associated Press toldĀ the story, the company earned $0.91 per share in "adjusted earnings," $0.09 less than the $1 pro forma profit that Wall Street had projected. Sales for the quarter, which came in at $1.14 billion, likewise fell short of Wall Street's targeted $1.17 billion. Finally, Brunswick guided investors to expect lower full-year earnings of between $3.85 and $3.87 per share -- as opposed to the $4.04 per share that Wall Street was expecting.

None of that sounded like good news, and investors didn't take it as such, selling off Brunswick stock in response. But what caused the earnings miss?

A bad quarter for boat makers

Brunswick went into some detail on this in its earnings release, describing how the company ratcheted back production of certain boat types to reduce inventory that had built up during "weak retail demand over the last several quarters." That necessarily impacted sales for the quarter. Additionally, management noted that "Hurricane Irma disrupted our Florida-based manufacturing operations" in the month of September.

With boats and boat engines accounting for about 85% of Brunswick's annual revenue (according to data from S&P Global Market Intelligence), you could tell this was already going to be a bad quarter. Additionally, management noted that "results in its fitness segment trailed our expectations." And yet, it wasn't all bad news.

Outboard engines and aluminum outboard boat sales, parts and accessories, all showed "strong growth." Looking forward, management predicts that 2017 will still end up being "another year of strong revenue and earnings performance, along with excellent cash flow generation" for Brunswick. Full-year sales are projected to grow 7% year over year (so about $4.8 billion), offsetting a "modest decrease in operating margins" (to 10%, perhaps?), with per-share profits ending up at $3.85 or better. Free cash flow should come in at a healthy $250 million or more.

Opportunity knocks

This morning, analysts at Northcoast Research found a lot to like in those numbers, saying the cheap valuation of Brunswick stock is now "impossible to overlook." Assuming Brunswick hits even the low point of its guidance range, $3.85 per share in profit on a $51 stock should work out to a 13.2 P/E ratio for Brunswick. Meanwhile, analysts surveyed by S&P Global project that Brunswick will grow its earnings to more than 16.2% annually over the next five years.

It almost goes without saying that the prospect of paying 13.2 times earnings for a 16%-plus grower should appeal to value investors. Also, Brunswick pays its shareholders a 1.3% dividend yield, which just adds to the attraction. As StreetInsider.com reports, Northcoast feels it cannot pass up such a great bargain. Northcoast is upgrading Brunswick stock to buy and assigning it a $61 price target, implying as much is $10-per-share upside.

Caveats and provisos

Between the growth rate and the dividend, I calculate approximately a 17.5% total return likely for Brunswick stock -- and a 0.75 total return ratio for this stock with a P/E of 13.2. If that's how things work out, Brunswick stock should be an out-and-out bargain.

The only note of caution I'd like to add to all the above is that currently Brunswick's trailing-12-month free cash flow is nowhere near the $250 million it's projecting to generate for the year. Rather, over the past 12 months, it has generated positive FCF of only $172 millionĀ -- barely $0.61 in real cash profit for every $1 in net income it is reporting.

Still, if Brunswick succeeds in restarting its cash machine and ends up generating more than $250 million in free cash flow this year as it's promising, its P/FCF valuation will be just 17.6 -- about equal to the 17.5% projected return I calculated above. Long story short, at this point, I see the stock as anywhere from fairly priced (based on projected free cash flow) to deeply undervalued (based on projected earnings).

Now, all Brunswick has to do is deliver on its promises. If it does that, I think things will work out just fine for Brunswick shareholders.