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...

There's no two ways about it: Stamps.com (STMP) has been a disaster. But could it be a disaster with a happy ending?

One analyst thinks so. Despite the fact that Stamps.com stock is down more than 80% over the past year -- despite the fact that it lost 55% in a single day after blowing up its near-exclusive relationship with the U.S. Postal Service in February -- this morning, TheFly.com reports that investment bank Craig-Hallum has upgraded Stamps.com stock to buy and assigned a $60 price target.

The question is: Why?

And the answer appears to be: Earnings.  

A collection of canceled stamps

Image source: Getty Images.

Stamps.com reports

Stamps.com reported its fiscal Q2 earnings results last night, and the news was...kind of OK.

Revenue declined year over year, but was only down about 1% at $138.8 million. Profits, on the other hand, plunged a staggering 67% to just $0.79 per share, while pro forma profits (the kind that Wall Street pays more attention to) were down 54% to $1.25 per share.

Now admittedly, that sounds pretty horrible (because it is). However, investors were anticipating an even worse performance. Pro forma profits, for example, were expected to be only $0.96 per share (according to Yahoo! Finance estimates). And quarterly revenue was predicted to come in about $10.5 million lower than it actually did.  

As a result, miserable as Stamps.com's news was, it still amounted to an earnings beat, and pre-market trading trends suggest this is something investors will be applauding today.

Craig-Hallum reacts

So how did Craig-Hallum react to this news?

Upgrading the shares and upping its price target by 25%, the analyst looked past the steep earnings decline to focus on what it calls "key directional improvements" in Stamps.com's business in the six months since it self-immolated in February.

As TheFly reports, Craig-Hallum sees Stamps improving its "position within the e-commerce ecosystem" and emphasizing a "high fixed, low variable cost model" with "attractive economics" (which may be reflected in the earnings beat we saw last night). At the same time, the analyst says it sees evidence that Stamps.com's negotiations with non-USPS parcel carriers are progressing.

The proof will be in the pudding -- but the evidence is in the conference call

The question investors must now ask is: Is there any evidence to back up Craig-Hallum's optimism about these developments, or is this just wishful thinking?

Well, so far, we haven't seen any actual announcements of new partnerships for Stamps.com -- certainly nothing of the scale required to replace the highly profitable "commission component" of its USPS partnership, which it terminated in February. But there is at least some evidence that Craig-Hallum isn't whistling past Stamps.com's graveyard.

For example, in the earnings press release itself, CEO Ken McBride confirmed that the company has "continued to make progress on our efforts to evolve our strategy to more fully embrace a global multi-carrier business model."

Later, in the post-earnings conference call, he elaborated on that: "We continued to work proactively with the USPS to drive value for our customers as the USPS remains a very important carrier partner for us. We also continued to make strides in our diversification of our carrier relationships with international posts including Royal Mail, French Post, Australia Post, nontraditional carriers with our Global Advantage Program."

And the executive later added: "We have had multiple very productive discussions with traditional and nontraditional carriers both domestic and international regarding new and enhanced relationships."

But again, nothing specific, and nothing final. Six months after Stamps.com blew up its business, we've yet to see the promised payoff.

The upshot for investors

And I have to admit, as a Stamps.com shareholder (yes, I still am one -- I guess I'm a glutton for punishment), this is all rather dispiriting.

That being said, it does now seem that the situation isn't quite as bad as it appeared six months ago. In updating and improving its guidance for the rest of this year, the company told investors that full-year sales are likely to range from $520 million to $560 million -- at the midpoint, ahead of Wall Street's expectation of $527 million in FY 2019 sales.  

Non-GAAP profits will range from $3.60 to $4.85 per share. Again, at the midpoint, that's a significantly more optimistic prediction than the $3.96 per share that analysts have been looking for.

That being said, when it comes to actual profits calculated according to generally accepted accounting principles -- GAAP profits -- those should range from $1.44 to $2.55 per share. Taken at the $2 midpoint of that range, I have to say that Craig-Hallum's new $60 price target on Stamps.com stock seems pretty optimistic to me at a projected P/E ratio of 30. Until the company stops shrinking its profits and begins growing again, I find it hard to justify paying 30 times earnings for the stock.

And for that reason, I cannot recommend buying Stamps.com.