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...

Investors in aircraft outsourcing company Atlas Air Worldwide (NASDAQ:AAWW) have enjoyed a rocky ride over the past two years. At one point last year, Atlas Air shares had more than doubled off their January 2016 lows. Atlas stock is still up more than 70% in two years, thanks largely to the company's decision to partner up with Amazon (NASDAQ:AMZN) and lease the e-commerce giant a fleet of 20 Boeing 767-300 converted freighters.

Is this run-up in share price at Atlas justified? Last year, my fellow Fool Lou Whiteman cast cold water on that idea, citing a high-volume feud between management and Atlas' pilots union, and arguing that weak earnings at Atlas "haven't seemed so optimistic" for Atlas stock. But this morning, investment banker Cowen & Co. begs to differ. Skipping past the bad news from 2017 to focus on "growth opportunities" at Amazon and at DHL, Cowen thinks Atlas Air is poised to outperform in 2018. As we learned today from a write-up on StreetInsider.com (requires subscription), Cowen is upgrading Atlas Air stock and assigning the shares a $72 price target.

Here are three things you need to know about that.

Airplane flying over cargo container ships

Atlas Air Worldwide is delivering for Amazon -- but will it deliver profits to investors? Image source: Getty Images.

1. Amazon is huge -- and bound to get bigger

Atlas Air's role as Amazon.com's own private air force -- Prime Air -- is clearly the development investors are most excited about. Amazon began flying for Amazon in August 2016 with just one single plane, but as Cowen explains, the business is getting bigger -- and fast.

From late 2016 to today, Atlas has grown its fleet of aircraft flown on Amazon's behalf from that first plane to now 12 airplanes flying today. By the end of 2018, Cowen expects to see all 20 of the originally contracted Atlas planes working for Amazon, "which should drive higher ACMI revenue," says the analyst. Over time, Cowen sees a "potential" for Atlas to quadruple the number of flights it conducts for Amazon, putting "at least 60 more aircraft" in Amazon's service.

2. Amazon is huge -- but Atlas is about more than just Amazon

After the announcement of their deal in 2016, Amazon became Atlas Air's highest-profile client -- but it's package delivery company DHL (a subsidiary of Germany's Deutsche Post) that remains Atlas's biggest client today.

As Cowen points out, DHL is a key Atlas partner, owning a minority 49% stake in Atlas subsidiary Polar Air Cargo Worldwide. DHL is also Atlas's biggest customer, having hired Atlas to operate 37 transport aircraft for it through the company's ACMI (aircraft, crew, maintenance, and insurance) and CMI businesses. DHL thus accounts for more than half the work done by Atlas's fleet of 72 Boeing 747 and 767 aircraft.

In its spare time, Atlas also does significant business with the U.S. military through contracts with USTRANSCOM (United States Transportation Command).

3. A catalyst in the wings

One facet of Amazon's partnership with Amazon has not played out as well as (investors) hoped -- or at least not yet. When Amazon announced its deal to lease Boeing 767s from Atlas back in 2016, Amazon also took out warrants to buy 20% of Atlas Air's stock at $37.50 per share -- and an option to buy 10% more.

Curiously, Amazon does not seem to have exercised any of these warrants or options yet. According to data from S&P Global Market Intelligence, Amazon still owns no Atlas Air Worldwide stock today. Rather, Atlas's top three largest shareholders today remain (in order) Blackrock, Vanguard, and Dimensional Fund Advisors L.P. (which own a total of less than 30% of Atlas' shares among them).

And yet, there's always the possibility that this could change. There's an obvious potential for Amazon to profit from buying Atlas shares for $37.50, when Mr. Market says they're worth more than $57 apiece. Should Amazon decide to exercise its warrants and options, it could quickly seize 30% ownership of Atlas, become Atlas's largest shareholder -- and in all likelihood, boost Atlas stock in a frenzy of buying, as other investors take a cue from Amazon's optimism.

The most important thing: Valuing Atlas Air Worldwide stock

Whether that optimism -- and whether Cowen's optimism -- will be justified depends largely on whether Atlas will succeed in translating more business from Amazon, DHL, and USTRANSCOM into higher profits.

In theory, growing Atlas's 72-plane fleet to 132 planes or more as Amazon expands could nearly double the company's revenue, and perhaps double its profits as well. Cowen doesn't say, however, how long it expects Atlas to take to grow its fleet by 60 more planes. This makes it hard to break that doubling in fleet size down into a useful per-year growth rate.

Most analysts surveyed by S&P Global only expect to see Atlas Air grow its earnings at about 12.5% annually over the next five years. Relative to the stock's current market capitalization of $1.45 billion, though, that works out to a valuation of 34.2 times trailing earnings. And I have to caution that 12.5% growth doesn't seem fast enough to justify that valuation -- the more so when you consider that, factoring net debt into the equation, Atlas Air actually has a debt-adjusted enterprise value of about $3.4 billion, and thus a debt-adjusted P/E ratio of closer to 80.

I see lots of possibilities for Atlas Air to grow Amazon.com's business. As for Atlas Air Worldwide itself, though, after running up so far, so fast in 2016 and 2017, I don't see a lot of hope that Atlas Air stock can continue to reward its shareholders.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Rich Smith has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon. The Motley Fool has a disclosure policy.