This Just In: Upgrades and Downgrades

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'll be tracking the long-term performance of Wall Street's best and brightest -- and worst and sorriest, too.

And speaking of the best ...
Energy drink Brauer Hansen Natural (Nasdaq: HANS) received a jolt of its own this morning. The shares are surging 5% as I write on the strength of a new upgrade out of stock house JPMorgan Chase, which pointed to Hansen's new line of Java Monster energy drinks (hey! Look over there!) as promising better-than-expected growth. According to JPMorgan, the slowing economy isn't affecting Monster sales. According to the analyst, the new coffee beverage line in particular is going so well that Hansen plans to roll out five new flavors this year, and hike prices 10%.

Raising prices on cash-strapped consumers? It sounds counterintuitive, but if Hansen can get away with it, this suggests the company has serious pricing power.

Let's go to the tape
So can Hansen squeeze growth from a contracting economy? And does JPMorgan have what it takes to correctly predict where the stock is heading? We'll get a clue on the first question when Hansen reports fourth-quarter earnings. As for the second, I can answer you right now:

JP does know what it's talking about. Sometimes. Including with respect to Hansen. Although the analyst's record for accuracy runs to just 51% overall, JP's correct calls have sufficiently outperformed its losers to win the megabanker a CAPS rating just shy of the top 10% of investors. What's more, Hansen itself helped boost JP over the 50% mark. CAPS shows us that the analyst recommended the stock back in December 2006, and rode it to 13 points of market outperformance through February 2007. Even better, between March and October last year, its outperform call netted over 74 points on the plus side of the ledger.

That said, JP's record on similar food and beverage stocks is spottier. It's got some wins ...

... and in related industries, some losses, too:

What I'd really like to do, of course, is examine a few buy/sell calls on other soft drink purveyors, to see how well JP's record holds up across the industry. Unfortunately, as far as we can tell from our CAPS archives, JP has kept mum. It doesn't appear to have made a new outperform or underperform call on Coca-Cola (NYSE: KO), PepsiCo (NYSE: PEP), Jamba Juice, Jones Soda -- none of 'em -- for at least the last 18 months.

I really wish the facts were otherwise. I'd feel a whole lot more comfortable with this "outperform" prediction if JP had a longer track record on drinks stocks, because when I look at Hansen, the bull case is far from clear. Selling for a 33 P/E, and expected to grow at a 27% clip, the stock may appear reasonably priced. But with free cash flow significantly less than its reported income under GAAP, Hansen carries a much higher price-to-free cash flow ratio.

Granted, JP thinks investors are "overlooking Hansen's potential growth," implying that the growth estimates are too low -- but seeing as the company has actually missed earnings estimates twice in the past four quarters (according to Yahoo! Finance), you've got to wonder if those estimates are in fact too high.

Foolish takeaway
Props to JP for calling Hansen right twice already. But I'd be leery of following its advice today. Hansen's at best a "hold."