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...

The Motley Fool first recommended Priceline.com stock nearly a decade ago -- and profited handsomely from it. But I still struggle to recognize Booking Holdings (NASDAQ:BKNG) when I see its ticker on my newsfeed. It's been nearly a year since Priceline changed its name to Booking Holdings, but it's hard to teach an old dog new names.

That being said, from time to time I do make the connection, and that's why, when I saw this morning that Deutsche Bank has decided to upgrade shares of Booking Holdings, my ears perked up.

Yours should, too. Here's why.

Check out the latest Booking Holdings earnings call transcript.

Hotel lobby

Hotel reservation company Booking Holdings is looking good. Image source: Getty Images.

A bad year for booking

Shares of Booking Holdings are up roughly 25 times in value over the last 10 years, but the past year hasn't been especially kind to long-term holders. Over the past 12 months, Booking Holdings shares have roughly flatlined as investors worried about the company's growth rate.

This absence of upwards stock movement, however, has Deutsche thinking now might be a good time to book a few shares at a discount price. Arguing that Booking Holdings stock is worth at least 27% more than it costs today, Deutsche is upgrading Booking Holdings to buy and raising its price target to $2,370.

Why Deutsche loves Booking Holdings

What has Deutsche Bank feeling so confident about Booking Holdings? Best known as a place to score cheap plane tickets back when it was set up as Priceline.com, Booking Holdings' business has leaned ever more in the direction of booking hotel reservations of late -- to the point that in its 10-Qs, "booking online accommodation reservations" now receives top billing in the company's description of its business, with Priceline reservations (which also include hotels) only a runner-up.

This fact isn't lost on Deutsche, which highlights its assessment that "room night growth" accelerated 14% year over year in Q4 2018 -- versus Wall Street's consensus prediction of 12.8% -- in its note covered by StreetInsider.com (subscription required). The analyst even predicts further acceleration in Q1 2019 as well, versus Wall Street's expectation of a slowdown -- indicative of the online travel agency industry in general being "out of favor" among investors.

Now, that lack of favor hasn't done any favors for Booking Holdings shareholders over the past year, but as a result, Deutsche says that the stock is now trading below its average valuation for the past five years. That undervaluation won't last though, argues Deutsche, if Booking can surpass expectations -- as the analyst thinks it will.

Citing the company's high asset quality, clean accounting, high quality of earnings, and strong free cash flow (Booking Holdings generated $5 billion in cash profits over the past year, versus reported earnings of only $2.8 billion, according to data from S&P Global Market Intelligence), Deutsche is confident this stock will outperform the broader market.

Valuing Booking Holdings

And I have to say -- I'm inclined to agree.

Although Booking Holdings still looks a bit pricey when valued on reported profit (its price-to-GAAP-earnings ratio is 31), the stock actually looks remarkably reasonably priced when valued on free cash flow -- just 17.2 times FCF.

Currently, consensus estimates have Booking Holdings growing profits at about 16.4% annually -- presumably based on those 12%-ish hotel-booking growth rates mentioned above, goosed by a bit of extra profit margin. But if Deutsche Bank is right and Booking can grow hotel bookings faster than 14%, and earnings even faster than that, then 17.2 times FCF should be a very nice price at which to pick up some shares.