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...

Often ranked among America's most popular restaurant chains -- last year, the Chicago Tribune named it its favorite "casual, full-service restaurant chain" -- Cracker Barrel Old Country Store (NASDAQ:CBRL) is winning some applause on Wall Street today. This morning, analysts at Maxim Group upgraded Cracker Barrel stock to buy and assigned the $147 stock a $187 price target -- implying more than 25% upside for new buyers.

Here's what you need to know.

Dice reading BUY and SELL on digital screen showing stock chart

Image source: Getty Images.

Rebuilding the barrel

It's no secret that Cracker Barrel stock has been a disappointment to investors of late. Weak same-restaurant sales -- part of a larger trend in the restaurants industry as a whole -- sent Cracker Barrel shares sliding last summer. A recovery last winter soon melted, and as of today, the stock is down 7% for the last 12 months, versus an S&P 500 that's up a good 13% in the same time period.

Last quarter's earnings release (Cracker Barrel's fiscal Q3 2018) contained just 3% sales growth and 4% growth in earnings, which didn't help Cracker Barrel progress much toward its goal of hitting the 4% sales growth and 12% earnings growth targets that Wall Street has set it for this year. Regardless, Maxim lays out a case this morning for Cracker Barrel making steady progress toward its goals -- even if it's still rebuilding off its recent slump.

In today's upgrade, laid out for us in a note on StreetInsider.com (subscription required), Maxim predicts that Cracker Barrel will produce same-restaurant sales growth in the "2.0%-2.5% range for the next few quarters." That doesn't seem unreasonable given that last quarter, Cracker Barrel achieved 1.5% same-restaurant sales growth in a still pretty tough environment. It's also worth pointing out that new restaurant openings could goose the company's overall sales growth range even higher, while "more benign food costs" could help Cracker Barrel turn that sales growth into even greater profits growth.

Uncorking the specifics

How much profit are we talking about here? Maxim still predicts Cracker Barrel's July earnings (Q4) will come in at $2.77 per share, slightly ahead of Wall Street estimates (and therefore good enough for an earnings beat).

Due out probably in August, this next earnings release will wrap up Cracker Barrel's fiscal 2018. If Cracker Barrel hits its numbers, the stock will earn $9.38 per share (up 12% year over year). Next year, Maxim sees the stock earning $9.99, which will make for a 6.5% growth rate as Cracker Barrel works through "another year of investment." Growth should reaccelerate in 2020, though, rising 10% to $11.01 per share, after which the analyst sees Cracker Barrel maintaining a "low-teen" growth rate.

How to value Cracker Barrel stock

Is that good enough to justify Maxim's $187 price target on Cracker Barrel stock? Is it even enough to justify the $147 per share that the stock costs today?

Here's how I look at it. According to data from S&P Global Market Intelligence, Cracker Barrel has earned $240 million in GAAP profit over the past year. Weighed against the stock's $3.5 billion market capitalization, this gives Cracker Barrel a P/E ratio of just 14.6.

With Cracker Barrel paying an above-average dividend yield of 3.3%, I'd think that a growth rate anywhere north of 11% would suffice to make Cracker Barrel's current share price "fair." That's what Maxim appears to be promising, and so the analyst's recommendation has merit.

There are caveats to this optimistic view, however. For one thing, Cracker Barrel carries a bit of debt -- roughly $225 million net of cash, which pushes the stock's enterprise value up to $3.7 billion. On the other side of the equation, the stock's free cash flow is subpar -- just $207 million versus $240 million in reported earnings. With an enterprise value-to-free-cash-flow ratio of nearly 18, one could argue Cracker Barrel ought to be producing a growth rate closer to the mid-teens before investors should buy its stock.

Long story short? I'm on the fence on this one. On the one hand, I love Cracker Barrel as a restaurant, and I think it's doing just fine as a business. Valuation-wise, however, the stock isn't such a clear bargain as to tempt me to buy. For my part, I see nothing wrong with leaving this stock on the shelf until the valuation picture gets clearer -- Maxim's recommendation notwithstanding.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.