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." While the pinstripe-and-wingtip crowd is entitled to its opinions, we've got some pretty sharp stock pickers down here on Main Street, too. (And we're not always impressed with how Wall Street does its job.)

Given that, perhaps we shouldn't be giving virtual ink to "news" of analyst upgrades and downgrades. And we wouldn't -- if that were all we were doing. Fortunately, in "This Just In," we don't simply tell you what the analysts said. We 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 ...
"No man is an island," so the saying goes. But can one man sink Las Vegas Sands' (NYSE: LVS) operations in the island territory of Macau? Wall Street worries that he might.

So far this week, two separate analysts have downgraded Sands' stock on fears that a wrongful termination suit by the company's former chief of Macau operations, Steve Jacobs, will bog down the company in years of litigation -- and perhaps bring down the wrath of the U.S. government itself. On Tuesday, a Nevada district court retained jurisdiction over Jacobs' lawsuit against Sands, rejecting the company's arguments to have the case heard in China, where Jacobs was employed.

But that's just the start of the problem. As The Wall Street Journal details, in making his case, Jacobs argues that he was fired for balking at Sands' demands that he violate the Foreign Corrupt Practices Act (FCPA) in multiple ways, including by: (1) hiring a local lawyer who sat on the Macau's Executive Committee (making him a de facto government official) to work for the company and (2) employing "improper leverage" to get favorable decisions from local government officials. Sands denies the charges, of course, but already the SEC has begun an investigation into whether Sands did indeed violate the FCPA. Reviewing the developments, first Jefferies downgraded the stock on Monday, followed by Argus Research downgrading yesterday.

Says Jefferies, an internal investigation by Sands could take three to six months to produce a report, which the SEC will then review before deciding to take further action. Argus worries the controversies could drag on even longer. Citing a "similar case" at Avon Products (NYSE: AVP), the analyst suggests the employment litigation alone could take one to three years to settle, racking up legal fees along the way, and potentially subjecting the company to millions of dollars in fines as new dirt gets dug up and passed along to the SEC. (If criminal acts are uncovered, the Department of Justice can also be called in.) Needless to say, these worries could weigh on the stock for quite some time.

But do they justify downgrading the stock?

Let's go to the tape
The analysts certainly think so, and judging from their records on CAPS, they may be right. Both Argus and Jefferies rank among the CAPS "All-Stars," analysts who we have determined from years of research to outperform their peers at least 80% of the time. On the other hand, both Argus and Jefferies also have significantly worse records picking winners and losers in the Hotels, Restaurants and Leisure industry.

Now, I don't mean to say that the analysts are wrong all the time. Argus has actually done quite well with its Sands recommendation of last year, and is winner on Marriott International (NYSE: MAR) as well, while Jefferies has raked in a couple of wins with Sands Macau-rival Wynn Resorts (Nasdaq: WYNN).

Still, these wins appear to be the exception rather than the rule. Across the resort industry, Jefferies has shown itself capable of "beating the S&P 500" less than half the time, and Argus straggles in with a record of only 39% accuracy. And while I, too, could be mistaken about this, my hunch is that the analysts are wrong to be downgrading Sands on this controversy as well.

Valuation matters, litigation doesn't
Why do I say this? Chalk it up to years and years of experience crying "wolf" about companies that looked to be in trouble from FCPA allegations -- only to see them get off with a scolding and a slap-on-the-wrist fine from the SEC (often with no admission of wrongdoing whatsoever.) Whether it was IBM (NYSE: IBM) or Lucent (now Alcatel-Lucent (NYSE: ALU) in 2004, Monsanto (NYSE: MON) in 2005, or Hewlett-Packard (NYSE: HPQ) as recently as last year, I've yet to see an FCPA investigation actually sink a company. Scary as the headlines appear, they ultimately all turn out to be less worrisome than a round error on the balance sheet.

And speaking of balance sheets ... have you taken a look at Las Vegas Sands', recently? I have. And after years of watching this company's long-term debt level going nowhere but up, I noticed that last year, the debt began to drop. What's more, free cash flow at the company, while still negative on an annual basis, has made marked improvements these past couple years. Cashflow near sextupled between 2008 and 2009, then tripled from 2009 to 2010 -- even as cash outflows in the form of capital expenditures dropped by half (in 2009), then stabilized (in 2010).

Foolish takeaway
Fools, I'm no Las Vegas Sands apologist. Nor have I any intention of investing in the stock until I see proof positive that it can achieve, maintain, and grow actual positive free cash flow -- which to date, it has not. That said, I do see the beginnings of a trend toward that happening. Sands stands within spitting distance of free cash flow-breakeven, and poised to become a true cash-generating operation.

For this reason, Wall Street's advice to stop buying the stock, just as it stands on the cusp of following Wynn into free cash flow-positivity, seems ill-timed to me. And justifying the move on fears of a toothless FCPA investigation, and an employment dispute? That's downright silly.

My advice: If you've held onto Las Vegas Sands through all the tough times already, you might as well stand pat and see how the bet pays off. Add it to your watchlist here and you'll get all the latest as it happens.

Motley Fool Options has recommended a synthetic long position on Monsanto. Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Fool contributor Rich Smith does not own (nor is he short) shares of any company named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 541 out of more than 170,000 members. The Motley Fool has a disclosure policy.