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 track the long-term performance of Wall Street's best and brightest -- and its worst and sorriest, too.

And speaking of the best ...
Has the economy turned a corner? Is the recession over? Doesn't matter, says Wall Street wizard Janney Montgomery Scott: No matter how good things get, Paychex (NASDAQ:PAYX) is still too expensive.

Just before the trading week ended on Friday, Janney managed to squeeze off one more round of ratings, downgrading Paychex to sell and suggesting there's more value to be had in archrival ADP (NYSE:ADP). According to the analyst, the numbers speak for themselves:

  • Paychex sells for 18.9 times earnings versus ADP's 15.1 multiple.
  • Paychex's enterprise value suggests an 18 times multiple to free cash flow, versus ADP's 13.3 times.
  • Valued on sales, Paychex looks richly priced at 5 times sales, versus ADP's 2.1 P/S.

So any way you look at it, Paychex is too expensive, says Janney.

At first glance you might not think so. After all, Janney's got a reputation for having made some pretty bad bets in its day -- ill-considered upgrades of Blockbuster (NYSE:BBI) and GameStop (NYSE:GME) last year, for example, which have resulted in significant market underperformance; or last April's luckless downgrade of MGM Mirage (NYSE:MGM) which promptly proceeded to pop 130%.

Mistakes like these can cost you -- and have cost Janney. Yet across its vast array of picks, the banker's still batting .520, and within the IT Services sector in particular Janney currently boasts 75% accuracy on its recommendations:


Janney Says


Janney's Picks Beating
(Lagging) S&P By

Accenture (NYSE:ACN)



5 points

Online Resources (NASDAQ:ORCC)



5 points

Wright Express Corp



112 points

Clearly, this banker knows a thing or two about the IT services industry. So when Janney advises making a "paired trade" -- selling Paychex and buying ADP -- I suspect that's a theory worth examining.

Not so fast, Tex
According to Janney, the main reason for selling Paychex today is that... it's done so very well in days past. Observes the analyst: "Recent stock price appreciation has created a 20% downward opportunity to our fair value estimate. Though we agree with the thesis to invest in Paychex before/into an employment/economic recovery, we believe expectations have become too high, pricing out the best of scenarios."

In other words, it's not so much that Janney is calling the top on this stock, as it's saying everybody else called the bottom a bit too soon. The economy's still on the rocks. Unemployment numbers that looked sorta-kinda-OK back in November took a turn for the worse in December. If the Recovery's flight should get delayed, and it takes longer than expected to arrive, investors could be the ones caught cooling their heels, waiting for Paychex to grow into its now-inflated valuation.

Foolish takeaway
Personally, I fear Janney's right about that -- the recovery is not here yet. It's still a way off, and if you buy Paychex here at 22 times earnings, you're probably going to have a long wait before you see any appreciable appreciation in stock price.

That said, there's not a lot of stocks out there that will pay you 4% to wait for the recovery. (Even ADP only pays a 3.2% dividend.) So while I don't disrespect Janney's analysis, I do disagree that this is one you want to sell. My advice: Hold onto Paychex, Fools. It's one stock that pays you to be patient.

Accenture and Paychex are Motley Fool Inside Value recommendations. GameStop is a Motley Fool Stock Advisor selection. Automatic Data Processing and Paychex are Motley Fool Income Investor picks. Fool contributor Rich Smith has no position in any of the stocks named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 1026 out of more than 145,000 members. The Motley Fool has a disclosure policy.