This series, brought to you by Yahoo! Finance, looks at which upgrades and downgrades make sense and which ones investors should act on. Today, our headlines feature higher price targets for two of America's biggest defense contractors: Boeing (BA 0.25%) and United Technologies (RTX -0.29%). The news isn't all good, however, so before we get to those two, let's take a quick look at what's happening over at eBay (EBAY 1.32%) in the wake of Carl Icahn's "spin off PayPal" suggestion.

eBay: Sell it now?
If you haven't heard, Carl Icahn made a case yesterday for breaking up eBay into two separate companies -- spinning off the PayPal online payments division, specifically. The activist investor, who owns 0.82% of eBay's stock, thinks a spinoff move would be a "no-brainer," unlocking the value of eBay's fastest-growing business, and moving it out from under the shadow of the parent e-commerce site that's losing ground to Amazon.com.

Other shareholders seem to agree. After Icahn made his proposal, they promptly bid up eBay shares by 12.5% -- despite eBay having just reported earnings that only matched, not beat, analyst earnings estimates.

And yet, according to at least three of these analysts, the price spike in eBay shares was an overreaction. This morning, each of Topeka Capital, Stifel Nicolaus, and Susquehanna Securities reduced their ratings on eBay. Topeka Capital in particular downgraded eBay shares to hold on fears that "challenges growing the core above e-commerce, challenges monetizing off-line initiatives, and stepped-up investments at Payments, are likely to limit management's ability to post beat and raise results over the next year."

StreetInsider.com notes that even as Topeka was cutting eBay's rating, eBay itself was cutting $0.15 off its earnings guidance for the current fiscal year -- now $3. Susquehanna said that in addition to the business' challenges, Icahn's hoped-for PayPal spinoff is "unlikely." Warned Susquehanna: "We believe it more likely that eBay stays one company and steps up its investment spending, which limits its potential for higher earnings power."

Given that eBay's currently expected growth rate of 15% already seems too low to support the stock's 24.7 P/E ratio, investors would be well advised to view yesterday's price spike as an opportunity to take the money and run.

Boeing is booming...
Speaking of higher prices, two analysts projected higher price targets for the stocks of two of America's biggest defense contractors this morning. Let's start with the bigger one: Boeing.

Boeing's Q4 earnings release is still nearly a week away, but over at Canaccord Genuity, they're losing no time in praising the stock before the news even breaks -- and predicting a $160 share price at year's end. According to Canaccord, "a strong finish" is expected for 2013, and with Boeing expected to announce "cost reductions" heading into 2014, the analyst is optimistic about the current year's guidance as well. Canaccord predicts that when Boeing announces next Wednesday, it will report earnings of $1.65 per share for the fourth quarter of 2013, and could earn as much as $7.72 in 2014 -- followed by $8.47 per share in 2015.

If Canaccord's right about the report, then it would equate to 13% earnings growth this year, followed by 10% next year -- or right in line with consensus projections of 11.5% average earnings growth at Boeing over the next five years. That may not sound like much, given that the stock currently trades for 25 times earnings. But when you recall that Boeing currently generates more than twice as much free cash flow as it reports on its income statement, I think the stock remains a bargain.

And United Tech is, too 
And finally, United Technologies. As we discussed yesterday, the company delivered a terrific earnings update this week, producing 9% revenue growth over full-year-2012 results and beating analyst earnings expectations by a nickel. This news prompted a quick uptick in expectations for the stock price from analysts at RBC Capital Markets this morning.

RBC, which already rates United Technologies stock an outperform, now has a new number for how much it expects the stock to outperform the market by "$132." That's the price per share that RBC expects UTC to hit by year's end, or about a 15% gain from today's prices. If it's right, then this kind of price performance probably will outpace the market, which gains only about 10% in an average year.

Unfortunately, RBC is not right. It's wrong. At today's prices, UTC will almost certainly underperform the market.

Why? Because after gaining 30% over the past year, United Technologies stock is now overpriced at a P/E ratio of 16.6 and an enterprise value to earnings ratio of 23.3. Projected earnings growth of 12% annually over the next five years isn't enough to justify paying these multiples -- not even with UTC paying a 2.1% to help bridge the gap in valuation. While a fine business and a great cash producer, the stock simply costs too much to rise much more.

Fool contributor Rich Smith has no position in any stocks mentioned. The Motley Fool recommends and owns shares of eBay.