This Just In: Upgrades and Downgrades

At The Motley Fool, we poke plenty of fun at Wall Street analysts and their endless cycle of upgrades, downgrades, and "initiating coverage at neutral." So you might think we'd be the last people to give virtual ink to such "news." And we would be -- if that were all we were doing.

But in "This Just In," we don't simply tell you what the analysts said. We'll also show you whether they know what they're talking about. To help, we've enlisted Motley Fool CAPS, our tool for rating stocks and analysts alike. With CAPS, we'll be tracking the long-term performance of Wall Street's best and brightest -- and worst and sorriest, too.

And speaking of the best ...
Shares of Motley Fool Stock Advisor recommendation Mobile Mini (NASDAQ:MINI) are plunging Tuesday after the company reported earnings that missed analyst expectations for the first time in more than three years. Although the firm recorded 18% revenue growth, of which 14% was organic, both sales and earnings ($0.36 pro forma, $0.17 net) fell short of Wall Street's hopes. In response, one of the analysts who had endorsed the firm pulled that endorsement and downgraded the stock to neutral.

Why did Robert W. Baird decide Mobile Mini would no longer outperform the market? News reports on the downgrade are vague on the point, but I suspect the earnings miss had more than a little to do with the analyst's decision, and the fact that the company lowered its guidance for Q3 didn't help matters. Yet at the same time that Mobile Mini missed and warned on Q2 and Q3, respectively, management held firm on its promises for the full year, predicting $285 million to $290 million in leasing revenue, and $1.53 to $1.58 per share in profits (both numbers are pro forma).

So here's the question. If Robert W. Baird thought Mobile Mini was a buy back when it promised these numbers previously, and Mini is still promising them today, does it really make sense to downgrade the stock? Working on the assumption that Baird is investing for the long term and encouraging its clients to do likewise, there can be only one reason for the downgrade: Baird doesn't buy the guidance, and thinks Mini will miss again.

So here's the other question: Is Baird right?

Let's go to the tape
For clues to Baird's prescience, we turn once again to Motley Fool CAPS, where we've been following Baird's tracks for nearly a year. Unfortunately, what we find there is not particularly encouraging (or rather, is encouraging for Mobile Mini shareholders). Baird is in the bottom half of all players with a CAPS rating of 43.33. Moreover, its accuracy ratio of 47% tells us this analyst is more often wrong than right in its picks. Incidentally, this shows a slide in the analyst's rep since last we checked in. Let's take a look at Baird's choices since June, to see where it's going wrong:

Of course, Baird isn't all that far away from 50/50 accuracy. The analyst does get some things right. Since June, its better picks have included:

Foolish takeaway
While I find little to admire in Baird's record, I actually agree with its decision to label Mobile Mini a "hold." Basically, my reasoning boils down to valuation. With $1.20 per share in trailing GAAP earnings, Mobile Mini sports a P/E ratio of just less than 19. Compared with the analysts' predicted 17% long-term profits growth, that gives the stock a PEG of 1.1, making it look pretty fairly valued on the surface. Moreover, the firm's high capital spending prevents it from generating free cash flow, limiting my ability to endorse the stock on that basis. All I've got to work with here is P/E, and from that perspective, Mobile Mini just plain doesn't look cheap.

That said, wiser Fools than I continue to give Mobile Mini the thumbs-up -- and down. To find out what the stock's current score leader on CAPS thinks about the prospects, click here. And to check out Motley Fool Stock Advisor's latest thoughts on the company, sign up for a free 30-day trial of the service and you can read all about it.

Fool contributor Rich Smith does not own shares of any company named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's ranked No. 284 out of nearly 60,000 players. The Fool has a disclosure policy.