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...

Harley-Davidson (HOG -2.30%) investors had a rough ride in 2017. Shares of the motorcycle maker sagged 10% last year -- and have underperformed the S&P 500 by a whopping 35 percentage points over the last 12 months. But could that be about to change?

Wells Fargo thinks so. This morning, the investment banker declared that it's getting off the fence, abandoning its market perform rating on Harley stock, and going whole-hog with an outperform rating instead. According to Wells, "despite weak industry fundamentals" for motorcycle sales, Harley-Davidson sports "solid financials" and an attractive valuation -- good enough to earn this $53 stock a $59 price target.

Here's what you need to know.

Motorcycles lined up

Analysts are lining up to knock Harley-Davidson stock -- all except one. Image source: Getty Images.

Nobody loves Harley anymore (and why that's OK)

TheFly.com has all the details on Wells' Harley-upgrade today -- but the news doesn't start out so well. As the analyst explains, U.S. retail trends for motorcycle sales are currently "uninspiring." In fact, Wells Fargo peer RBC Capital opined this morning that motorcycle sales this year are likely to be down 5% to 7% compared to last year. This, warns Wells Fargo, is owing to "weak ... retail demand," and it's going to mean "ongoing competitive pressures" as motorcycle makers vie to make what sales they can -- at whatever price discounts they must.

That being said, the fact that investors are so pessimistic about Harley-Davidson these days makes Wells Fargo feel perversely "positive on HOG shares given the valuation."

How much does Harley-Davidson cost?

What valuation, specifically?

Harley's $560 million in trailing-12-month profits, weighed against the stock's $8.9 billion market capitalization, give Harley a P/E ratio of just under 16. Given that analysts quoted on S&P Global Market Intelligence expect no more than 10% long-term annualized earnings growth out of Harley, that results in a PEG ratio of 1.6 on the stock -- not cheap.

And yet, that's not quite the whole story, because S&P Global data show that Harley-Davidson is actually generating a whole lot more free cash flow (cash profit) than its income statement lets on. Over the past four reported quarters, in fact, S&P Global data show Harley churned out $988 million in free cash flow -- 76% more cash profit than is reflected in the company's GAAP earnings.

Harley-Davidson stock actually sells for only nine times free cash flow. With a 10% growth rate and a 2.8% dividend yield, that doesn't look like such a bad valuation after all.

What could go wrong?

That being said, despite 10% long-term earnings growth expectations, there's still that RBC prediction that the motorcycle business will shrink by 5% to 7% this year. No matter how cheap Harley-Davidson stock may look right now, there's still a good chance that the stock could go down when earnings are released next week if things are as bad as analysts seem to think they will be.

In that regard, it's worth pointing out that prior to today's upgrade, analyst comments on Harley's near-term prospects have not painted a particularly bright picture. On Jan. 3, Longbow Research downgraded Harley stock to underperform citing the same expectation of a 5% to 7% sales decline that RBC mentioned -- and warning of a potential 20% decline in U.S. bike shipments in Q4. A week later, Wedbush warned of "[a] lack of sustained retail improvement" that pointed to a probable earnings miss, and last week, Northcoast Research said December demand was "unfavorable."

The upshot for investors

Then again, it's unfavorable sentiments like these that have helped to knock Harley-Davidson stock down to a price that Wells Fargo now views as attractive -- and created the opportunity for investors to buy into Harley-Davidson on the cheap. If you can stomach the prospect of bad news next week, now just might be the right time to buy Harley-Davidson stock for the long term.