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 worst ...
As Beethoven's Sixth Symphony played softly in the background, Deere (NYSE: DE) shares leapt gaily through the forest glen yesterday, rising more than 5% in response to an upgrade from Morgan Joseph. Citing "exceptionally strong demand from U. S. row-crop farmers buying combines and tractors, continued brisk business in Brazil, and the emergence of domestic construction-equipment out of a 5 year recession," the analyst raised its earnings estimate for the second time in a row -- and recommended buying the shares.

According to Morgan Joseph, you see, American farmers are "likely to continue to enjoy very high levels of prosperity and to buy 'big iron' even if prices go up 4%-5%." The combination of higher sales and higher profit margins on those sales leads MJ to believe Deere will earn $3.80 per share this year, up from the analyst's initial estimates of $2.25 some months ago.

Which all sounds pretty good, right? And maybe Deere investors deserve to enjoy their Bambi moment in peace. Problem is -- and I hate to play the part of the hunter in this woodlands drama -- but it's time to take Beethoven off the turntable now, and interrupt with a few words from Rage Against the Machine:

"I think I heard a shot ..."
There's at least three reasons to worry about MJ's bullish prognosis on Deere. First and foremost: The analyst's own record in the Machinery sector:


MJ Said:

CAPS Rating (out of 5):

MJ's Picks Lagging the S&P By:




20 points

Terex (NYSE: TEX)



5 points

Manitowoc (NYSE: MTW)



1 point

As it turns out, even if Morgan Joseph is right about farmers wanting to buy big iron this year, there's no guarantee that MJ is right about it being Deere's wares that they'll be buying. Where choices are available, farmers might just as easily choose to buy their equipment from AGCO (Nasdaq: AGCO), CNH Global (NYSE: CNH), or Kubota. It's anybody's guess, and unfortunately, this analyst just isn't very good at guessing on machinery stocks, goofing on more than 60% of its picks in this sector.

Second, MJ's major thesis behind this week's recommendation seems to be that this is a good year for agriculture in the U.S. And while I hope the analyst is right about that, at the same time MJ was recommending buying Deere in anticipation of a bumper crop of ag profits, The Wall Street Journal was worrying aloud over the possibility that a second straight year of wet spring weather is "threatening U.S. winter-wheat production." Not a good sign.

Last but not least, there's the valuation of Deere's shares themselves. I mean, yes, Deere's price-to-earnings ratio of 25 looks attractive relative to the likes of Caterpillar (NYSE: CAT), Manitowoc, or Navistar. And yes, analysts on average expect to see stronger growth out of Deere than Terex will produce. I admit that there are some positives in the stock. But valued on its own right, Deere appears richly priced relative to the sub-10% growth rate that most folks expect it to achieve over the next five years. (And by the way, MJ's own earnings estimate for this year is below the consensus number.)

Even viewed from the perspective of free cash flow, the company's price-to-free cash flow ratio of 10.7 tells me the stock is at best fairly valued today, and unlikely to reach the analyst's $75 target any time soon. Factor in Deere's massive $20 billion net-debt load, and I calculate the enterprise value-to-free cash flow ratio at something closer to 18.5 -- hardly a bargain.

Foolish takeaway
Between Morgan Joseph's spotty record in the industry, the iffiness of its projected agricultural "good times" this year, and Deere's own questionable valuation, I just cannot get on board with this week's recommendation of the stock.

Sorry, MJ. This Deere pick is just lame.

The Fool owns shares of Terex, but Fool contributor Rich Smith does not own shares of any company named above. You can find him on CAPS, pontificating under the handle TMFDitty, where he's ranked No. 449 out of more than 165,000 members. The Motley Fool has a disclosure policy.