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...

After a year of watching their stock go nowhere but down, Oshkosh (OSK -1.23%) investors finally had a good day yesterday. The company reported a big earnings beat -- and a big guidance raise -- and as a result, saw its stock pop more than 2.5%.

Today, Mr. Market seems to be setting up Oshkosh for another bull run, as analysts at Merrill Lynch make happy noises about Oshkosh's growth prospects, while other analysts at RBC Capital up their price targets on Oshkosh stock.

Here's what you need to know.

Five dice labeled Buy and Sell on top of an LCD screen showing stock charts and numbers

Image source: Getty Images.

Upgrading Oshkosh

TheFly.com has the details. This morning, Merrill Lynch upgraded Oshkosh stock to buy and assigned an $85 price target that implies upwards of 16% potential profit for investors who buy shares at today's prices.

Oshkosh's growth streak, says Merrill, has not yet peaked and earnings could continue growing into 2020 or even 2021, in the analyst's estimation. Its backlog of defense work is rising, while the company's access equipment and fire and emergency units, more tied to the health of the economy, appear to be growing steadily as well.

Merrill Lynch says Oshkosh is supplying "scarce earnings momentum in a slow growth machinery world."

And increasing price targets, too

Nor is Merrill Lynch the only analyst that's keen on Oshkosh. Canadian investment banker RBC Capital -- which already had an outperform rating on Oshkosh before Wednesday's announcement -- confirmed that it's raising its price target on Oshkosh stock to $90.

Like Merrill Lynch, RBC cited "raised Access revenue and margin targets" at Oshkosh for its optimism, in addition to "surprisingly strong" new order growth. RBC also points out that Oshkosh is buying back stock, which should serve to concentrate its growing earnings among a shrinking number of shares outstanding, with the result that earnings per share will grow faster than expected.

It's also worth pointing out that RBC isn't the only banker raising its price target on Oshkosh today. Citi, Credit Suisse, Deutsche Bank, and Morgan Stanley all raised their price targets as well -- and all of them think Oshkosh stock is worth more than it's currently selling for.

What Oshkosh said

So what was it that Oshkosh said yesterday that has so many analysts feeling so optimistic about its prospects? Let's take a look.

Most companies are reporting Q4 2018 earnings right about now, but Oshkosh reported its results for "fiscal Q1 2019." Earnings per share more than doubled in comparison to last year's Q1, rising to $1.51 on sales of $1.8 billion -- up 14%. The company highlighted "higher access equipment and fire & emergency segment sales" as driving the growth, with both those segments showing "double digit sales growth." And actually, that understates just how great the news was -- access equipment sales jumped 32% year over year, while fire and emergency sales were up 29%.

CEO Wilson Jones called this "a good start" to fiscal 2019, but not the end of the good news. He continued, "[W]e remain confident in our outlook, supported by positive customer sentiment, elevated backlog and a focused Oshkosh team." Helping the company achieve that outlook will be a $1.7 billion order for Joint Light Tactical Vehicles (JLTV) received in the quarter.

With business thus booming, Oshkosh now predicts that it will earn anywhere from $6.90 to $7.40 per share this year on sales of between $8.05 billion and $8.25 billion.

What it means for investors

All these estimates, it should be noted, are higher than what Oshkosh had previously guided investors to expect, which explains Wall Street's enthusiasm for the stock today. But are they high enough to make Oshkosh stock a buy?

I'm not so sure.

Consider: With $524 million in trailing net profit and a $5.1 billion market cap, Oshkosh certainly looks cheap, with shares costing less than 10 times trailing earnings. And assuming the company hits the high end of its earnings guidance, the stock would be nearly as inexpensive on forward P/E as on trailing P/E. Relative to analysts' projected growth rate of 15% for Oshkosh, that seems cheap.

What worries me about Oshkosh, however, is the fact that its free cash flow, which was already lagging far behind reported net income at the end of fiscal 2018, is falling even further (both objectively, and relative to reported earnings) as the new year begins. As of fiscal Q1 2019, Oshkosh now has just $222 million in trailing FCF, versus $524 million in reported profit -- less than $0.42 in real cash profits for every $1 of reported earnings, according to data from S&P Global Market Intelligence.

This suggests to me that, although Oshkosh's earnings are high right now, these earnings are of low quality, and quite possibly unsustainable. For this reason, I don't agree with Merrill Lynch or RBC. No matter how good its earnings look, until its free cash flow number improves, I cannot call Oshkosh stock a buy.

Check out the latest Oshkosh earnings call transcript.