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

So 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.

Too soon, too soon
There's a chill in the air and a turkey in the oven. Relatives are flying in from around the country, and Thanksgiving is upon us. Naturally, now's the time of year to be thinking of ... Christmas. And to pick winners and losers in the retail industry.

"Too soon," you say? You just want to enjoy Turkey Day in peace and leave worries about Christmas shopping till Cyber Monday? "Sorry. No can do," replies JPMorgan, which yesterday published a report on who's going to win the bulk of consumer dollars this holiday season. Formerly a fan of Target (NYSE: TGT), the banker has just downgraded that stock to "neutral." But who will take Target's place?

Topping JP's shopping list now is retail overlord Wal-Mart (NYSE: WMT), which JP tells us has a "low risk profile" and is starting to grow again. According to the analyst, "in retail traffic and sales, momentum often leads to more momentum as metrics essentially capture a directional shift in consumer behavior. ... In the near term, we believe the stock can continue to move higher as WMT [grows] U.S. same-store sales." Longer term, JP sees Wal-Mart capturing even more sales as consumers, cash-strapped after the holiday giving season, try to stretch what few dollars remain in their wallets a little farther by gravitating to Wal-Mart's always-low prices. Result: Wal-Mart gets an upgrade to "overweight."

But does it deserve it?
Is JPMorgan right about Wal-Mart? I don't think so, and I'll tell you why. Start with the valuation. At first glance, Wal-Mart doesn't look too unreasonably priced. Priced at 12 times earnings, Wal-Mart looks a bit cheaper than Target (12.3 P/E). But Wal-Mart may not be as cheap as it looks. The problem with valuing a stock on P/E, you see, is that it tends to overlook a couple of crucial factors affecting a stock's worth.

P/E doesn't consider debt load, for one thing -- and Wal-Mart has a boatload of debt -- about $52 billion net of cash reserves. P/E also also ignores the fact that Wal-Mart generates significantly less "cash profit" from its business than is claimed on its income statement. Over the past 12 months, free cash flow at the firm came to just $11.4 billion -- barely 69% of reported net income. Value the company on its ability to produce free cash, and adjust for debt, and what you get is an enterprise valued at nearly 22 times annual free cash flow. That's a lot to pay for a business that few analysts believe will grow faster than at 9% over the next five years.

Wal-Mart: Always low prospects
So right off the bat, I'm pessimistic about Wal-Mart. But this company has scarier problems. Wal-Mart is a big retailer, true. But dinosaurs were big, too, and look what happened to them. Like the dinosaurs, I worry that Wal-Mart's failing to evolve to meet new challenges -- not just from daily deal sites like Groupon (Nasdaq: GRPN), but from fast-growing (Nasdaq: AMZN) as well.

Right now Amazon is engaged in two main conflicts: a high-profile streaming war with Netflix (Nasdaq: NFLX) and a battle for tablet supremacy with Apple (Nasdaq: AAPL) and Barnes & Noble (NYSE: BKS). Amazon's weapon of choice in this war is a cut-rate tablet PC called the Kindle Fire, which Amazon suggests people buy alongside a $79 annual Amazon Prime service. Customers who take the deal wind up with a tablet that's half the price of an iPad, plus free streaming of videos on their Kindle Fires.

Whether these tactics ultimately beat Netflix, Apple, and B&N remains to be seen. More important to Wal-Mart is that Amazon Prime's original purpose was to lock customers into the habit of buying everything -- and I mean everything, from books to movies to hi-def TV sets to cereal -- from Amazon. As such, the more effort Amazon puts into capturing tablet and streaming market share from Apple and Netflix, the more it's going to siphon retail sales away from Wal-Mart, almost by accident.

Foolish takeaway
Retail analysts tell us there's basically no growth in consumer spending going on in the U.S. today and may not be for some time. Yet these same analysts project that Amazon will grow its annual sales at 22% per year for many years to come. There's only one way Amazon can do this -- and it's by stealing market share from existing retailers like Wal-Mart.

JPMorgan may see this as a scenario in which Wal-Mart will "outperform" the market. I don't.

How bad might things get for Wal-Mart? Pretty darn bad. Read all about it in our new -- and free! -- report: " The Death of Wal-Mart: The Real Cash Kings Changing the Face of Retail ."

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.