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 ...
I'll give Wedbush this much: They've got gumption. In just a few short hours, Hewlett-Packard (Nasdaq: HPQ) will unveil its fiscal Q3 earnings to the world. We'll learn how the company has fared since losing CEO Mark Hurd to Oracle (Nasdaq: ORCL), how things are starting to shape up under the leadership of SAP (NYSE: SAP) poach Leo Apotheker.

To be clear, we'll know all this tonight -- but Wedbush is upgrading the shares today. Before it knows.

So ... what is it that makes Wedbush tempt fate, and risk getting left with egg on its face (as happened when Barclays pulled a similar stunt with Cree last month?). According to Wedbush, Wall Street's simply being too conservative with its earnings projections for H-P: "The demand environment in the commercial segments remains strong and spending in US public sector is not as bad as many had feared. The weakness in the European public sector ... was most likely factored into every tech company's guidance." In short, when HP reports earnings tonight, it's going to "beat" expectations, and spark a rally. Accordingly, Wedbush upped its rating on the stock to "outperform," and slapped a $50 price target on the stock.

And Wedbush may be right about that. After all, at a P/E of less than 12, paying a tidy 0.8% dividend, and projected (by most analysts) to be capable of growing at 10% per year over the next five years, H-P certainly doesn't look expensive. There's also the fact of Dell's recent earnings "beat" to consider. If the No. 2 global computer maker beat expectations last quarter, what are the chances the No. 1 computer maker didn't do at least as well?

Let's go to the tape
Excellent question. Here's the answer: "About 60%." That's the frequency with which Wedbush has misread the market, and goofed on its PC industry buy/sell recommendations since we began tracking its performance.

Now don't get me wrong -- Wedbush isn't all bad. It's actually often right on its semiconductor picks for example, making winning predictions on Intel (Nasdaq: INTC) and Advanced Micro Devices (NYSE: AMD) alike. But over the past four years, Wedbush has blown calls made within the Computers & Peripherals industry 60% of the time, including notable blowups Western Digital (NYSE: WDC) and STEC (Nasdaq: STEC):


Wedbush Says


Wedbush's Picks Beating (Lagging) S&P by

Advanced Micro Devices Outperform ** 32 points
Intel Outperform ***** 17 points
Western Digital Outperform **** (4 points)
STEC Outperform *** (87 points) (picked twice)

And call me a pessimist, but I very much fear Wedbush is wrong again today -- and even if it's not proven wrong tonight, it eventually will be.

Why? Because the value just isn't compelling. Sure, 12 times earnings doesn't sound like a lot to pay for HP. True, too, quality of earnings is pretty high at the company, with free cash flow backing up about 97% of reported GAAP "profits." But if the best this company can manage is 10% growth, I'm hesitant to say the stock is clearly "undervalued." To me, it looks only fairly priced.

Of course, central to Wedbush's buy thesis is the idea that HP will not grow at only 10% over the next half decade. That Wall Street is underestimating the company's growth trends. But even if that's true, how much of a misconception are we talking about here, really?

According to Wall Street, HP is going to report earning $1.27 tonight; Wedbush says it will earn $1.29 -- a whopping 1.6% difference. For full fiscal year 2011, the differential is even smaller. Wall Street says to look for $5.11 per share out of HP; Wedbush predicts $5.15 (a 0.8% "beat"). Big diff.

Foolish takeaway
Listen, Fools. I've been a fan of HP for quite some time -- up until the time it dumped its CEO, in fact. But a lot of things have changed since then. For one, Hurd is no longer at the helm. For another, the company is laden with a whole series of acquisitions it must integrate -- and has traded its large cash pile for this new pile of troubles.

Now, maybe if the stock price reflected these problems, I'd be willing to clamber out there on the limb with Wedbush today. If Mr. Market was overestimating the dangers, and undervaluing the shares, I'd be willing to give the stock the thumbs-up and trust in a sizeable margin of safety to hold me harmless if was proven wrong. Instead, what I see today is investors offering to pay too high a price for HP's prospects, and doing so with no margin of safety whatsoever.

That's just not a bet I want to make.

Rich Smith owns shares of Western Digital. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 624 out of more than 170,000 members. The Motley Fool has a disclosure policy.

Intel is a Motley Fool Inside Value recommendation. The Fool owns shares of and has bought calls on Intel. Motley Fool Options has recommended buying calls on Intel. The Fool owns shares of Oracle.

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