Photo: Harley Davidson.

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 supercomputer 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...
The past two weeks have not been kind to shareholders of Harley-Davidson (NYSE:HOG) stock. In back-to-back (to back) ratings moves, first RBC Capital, then KeyBanc Capital Markets, and this week finally Raymond James, have announced ratings equivalent to "hold" on HOG stock. And in fact, this week's announcement may be the worst news of all.

On Wednesday, ace analyst Raymond James warned that according to its sales checks, Harley-Davidson is not going to even come close to hitting the 11% sales growth rate it was expected to achieve in fiscal Q2 2014. Rather, "mid-single digits" growth is more plausible, and profits that were expected to top $4 a share this year (and hit $4.65 per share in 2015) now look likely to fall short at just $3.94 and $4.56, respectively. Accordingly, Raymond James has decided to pull its strong buy rating on Harley, and downgrade the stock to market perform (the Wall Street equivalent of a hold rating).

But is that a reason to sell Harley-Davidson stock?

Let's go to the tape
At first glance, the investors who sold off Harley-Davidson stock by 3% Wednesday may have been right to worry. After all, this is no fly-by-night stock shop we're talking about here. It is Raymond James -- one of the premier names in stock picking, and an analyst that consistently scores in the top 10% of Wall Street investment bankers that we track.

With a record of 56% accuracy on its picks, and more than 12% outperformance of the market per pick, Raymond James is quite literally one of Wall Street's Best stock pickers, and the analyst responsible for such winning picks as:


Raymond James Said:

CAPS says (out of 5 stars possible):

Raymond James's Picks Beating S&P By:




222 points



235 points

Spirit Airlines



252 points

So the analyst's record of success is pretty much beyond reproach. Raymond James has also done pretty well with its past endorsements of Harley-Davidson stock, which is up more than 76% from the price at which Raymond James recommended it back in April of 2011. And yet... I still disagree with the decision to downgrade Harley today. Here's why.

Valuation matters
I admit that, at 19.5 times earnings , Harley-Davidson stock looks pricey for its long-term anticipated growth rate of 16% -- at first. But don't be fooled. Looks can be deceiving, and Harley-Davidson is actually quite a bit more profitable than meets the eye.

This company blew away analyst estimates last quarter, reporting a 22% surge in profits at the start of the year, for $1.21 per share in profit. And S&P Capital IQ data show that the company is generating even more real cash profits than it is allowed to report under generally accepted accounting principles, or GAAP. Free cash flow at the firm approached $1.1 billion over the past 12 months -- a good 39% ahead of GAAP "net income."

Valued on free cash flow, Harley sells for a price-to-FCF ratio of just 13.8 -- much cheaper than its apparent P/E ratio of 19.5. And between Harley's 16% annual profits growth anticipated over the next five years, and its 1.5% dividend yield, I think 13.8 times FCF is a bargain -- even if Raymond James and the other analysts are right, and even if Harley does fall a bit short on its sales in this current quarter.

Expectations matter, too
Remember KeyBanc's downgrade last month? KeyBanc warned of "low-single-digit" sales growth at the company in Q2. So viewed in the context of that prediction, you could even see Raymond James's projection of "mid-single digits" growth as a sign of improvement.

And of course, even KeyBanc admitted that its research was showing that "HOG retail again outpaced the industry." So if Harley-Davidson is not performing quite as well as we might like to see it doing -- the news has to be downright grim for rivals Polaris (NYSE:PII) and Honda (NYSE:HMC), who might even be losing market share to Harley-Davidson.

Foolish takeaway
So where does all this leave us? There's a chance that Harley-Davidson stock won't turn in the kinds of profits numbers that we were looking for in Q2. So what? There's a chance of that happening in any quarter. For investors who focus on the long-term attractiveness of Harley-Davidson stock, however, 14 times free cash flow looks like a very nice price to pay for 16% growth.

Harley's Sportser 1200. Photo: Harley-Davidson.