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...

Panamanian air carrier Copa Holdings (NYSE:CPA) reported its fiscal Q2 earnings results Wednesday evening, and by the time investors had finished trading on that news Thursday, Copa stock was up nearly 11%.  

Get ready for a repeat.

Yesterday, two Wall Street analysts rushed out price target hikes on Copa stock. This morning, a third banker joined in the fun, as Raymond James announced it is upgrading Copa shares to outperform and assigning a $127 price target.

Here's what you need to know.

Airplane silhouette in the sky with clouds and a sun setting behind it

Image source: Getty Images.

Copa by the numbers

Copa's earnings news Wednesday was pretty terrific. According to a summary provided by TheFly.com, the airline beat earnings estimates, reporting $1.20 per share in profit where only $1.08 had been expected. Sales likewise exceeded expectations, coming in at $645.1 million versus the consensus for $628.4 million.

Net profit for the quarter rose only 2.6%, and sales inched up 1.7% year over year, hurt in part by the continued grounding of Copa's 737 MAX fleet. Revenue per available seat mile (RASM, a statistic that gauges how well the company is filling its planes with paying customers) grew a very respectable 6.3% year over year, and with more passengers crowding aboard more fully packed planes, Copa's load factor increased 160 basis points to 85.1%.

Result: Copa's operating profit margin jumped 330 basis points to 12.8%.

How Wall Street responded

The day after earnings were released, investment banker Stifel Nicolaus, which has been sitting on the sidelines with a hold rating, ratcheted up its target price on Copa to $95 a share -- less than what it costs today. (That's bad.)

Buckingham Research, which is more optimistic and has a buy rating on the stock, raised its price target to $125 a share. (That's good.)

Best of all, though, is StreetInsider.com's news today that Raymond James was apparently sufficiently swayed by the strength of Copa's numbers to swing its rating from market perform to outperform, topping both of yesterday's price-target hikers with its own goal of $127 a share.

Rational, or irrational exuberance?

Is this a rational response to an earnings beat, or is Wall Street perhaps overreacting? I mean, yes, Copa "beat earnings" -- but still, a 1.7% increase in sales and a 2.6% rise in profits don't seem like very much to get excited about.

Granted, Copa's growth has been hampered by Boeing's 737 MAX debacle, and that's a problem not of the airline's making (and should resolve itself eventually). But given that only 6% of Copa's fleet is composed of grounded Boeing 737 MAX 9 aircraft, I don't believe the company would have done all that much better than it actually did, even if its MAXes were already back in the air.

Nor am I particularly thrilled with the valuation on this stock, I must admit. With a $5.1 billion market capitalization and only $88 million in trailing earnings, Copa trades for a pretty lofty P/E ratio of 58 -- and that's before you even factor debt into the picture. (The company carries about $850 million more debt than cash on its balance sheet.) I have to wonder: Is Copa really that much better an airline than Southwest, for example, which costs only 12 times earnings? Is it that much better than Delta, which costs less than nine times earnings?

Although it's true that free cash flow is strong -- Copa generated $165 million in real cash profits over the past 12 months, nearly twice reported earnings -- I still see the stock trading for a pretty pricey 31 times free cash flow even by that measure (and again, even giving the company a pass on the debt). Furthermore, the consensus on Wall Street right now, according to S&P Global Market Intelligence, is that Copa still won't grow earnings faster than 16% annually over the next five years.

Fifty-eight times earnings, and even 31 times free cash flow, seems to me too high a price to pay for that kind of growth. And this, in the end, is why I cannot agree with Raymond James' decision to upgrade Copa Holdings stock today.