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 community 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 its worst and sorriest, too.

And speaking of the best ...
One of the literal "best" in the business says Wal-Mart (NYSE:WMT) investors are getting a price rollback on their stock, and that now's the time to buy. Early this morning, Morgan Keegan upgraded shares of the world's largest retailer to "outperform."

Why?
Good question. StreetInsider.com, which usually has good insight into the reasons behind these rankings, has no data on Morgan Keegan's thinking on this one. MarketWatch tells us only that MK expects Wal-Mart to control its inventories and improve its apparel business, leading to improved same-store sales. This, combined with continued international expansion, should yield profit growth.

That's logical, if true. But does Morgan Keegan know what it's talking about?

Let's go to the tape
Turns out it does. According to CAPS, Morgan Keegan gets nearly 55% of its stock picks right, and ranks just shy of the top 10% of Wall Street players. What's more, while MK, like many analysts, has been racking up its biggest wins in the energy sphere lately, it's also developed a fine string of winners in the retail industry:

Granted, Morgan Keegan doesn't get every retail call right ...

... but on balance, the analyst seems to know what to look for in a successful retailer.

Mind you, I'm not enthusiastic about Wal-Mart myself. I have to admit that when I look at this company, all I see is a lumbering giant with a similarly lofty stock price.

Trading for 18 times trailing earnings, but expected to grow just more than 11% per year going forward, I see no obvious value in the shares. Digging deeper to examine free cash flow, all I find is that it falls 38% short of what Wal-Mart reports as "profit" under GAAP. The resulting price-to-free cash flow ratio of 28 suggests to me that unlike its stores, bargain shoppers should run away from this stock.

Foolish takeaway
With the shares already up more than 16% over the past year, outperforming the broader market by 25 points, I simply don't see the value here.