This Just In: Upgrades & 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 just tell you what the analysts said. No, we're here to hold Wall Street to account. We're going to tell you what the analysts said ... and then show you whether they know what they're talking about. Helping us in this endeavor will be Motley Fool CAPS, our tool not only for rating stocks, but also for rating the analysts who rate stocks. 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 ...
Banc of America Securities woke up bright eyed and bushy tailed yesterday, leapt out of bed, put on some coffee, and issued a ratings upgrade for song-meister Warner Music Group (NYSE:WMG). Just hours after Warner had announced that its offer to acquire EMI Group -- if it decides to make one -- will likely be an all-cash tender, BoA opined that the tie-up looks so favorable as to create an "extended positive bias" in favor of Warner's stock.

(Pun alert. See if you can find them all:) EMI has issued two earnings warnings in as many months, and reported a loss for its first fiscal half, back in November. BoA argues that with EMI in such dire straits, it's less likely to tell Warner that it can't always get what it wants. This suggests that Warner may be able to pick up EMI for -- if not a song -- then at least a better price that the $4.9 billion that was bandied about the last time Warner approached its target.

As is our wont, before deciding whether BoA knows what it's talking about here, we'll do a quick checkup on how the firm has fared on CAPS. There we see that BoA has improved its rating since last time we "quality checked" one of its ratings. Its new and improved 97.91 CAPS rating puts BoA within shouting distance of the top 2% of CAPS players. Here are a few of the picks that got BoA where it is today:

And a few more that have "helped" to keep the firm out of the top 10% of professional CAPS players:

Overall, I'd say BoA is doing a fine job of things. It's a bit shaky in the "sell rating" department, I'll grant you. But then again, in a bull market such as this, bearish predictions often prove a risky business. Fortunately for music lovers, BoA is sticking with what it does best with Warner: calling winners.

Between BoA's sterling CAPS rating and the fact that EMI shares are trading for more than a $1 billion discount to last year's rumored price, even after news of Warner's latest bid interest broke, I'd say chances are good that BoA is right today. If Warner wins its prize this time around, it will do so for a much nicer price. And being a proponent of the theory that valuation matters in investing, I'd say the odds favor BoA's outperform call.

You've heard what BoA has to say. You've seen my thoughts. Looking for a third opinion? Check out what the current CAPS score leader on Warner Music Group has to say about the stock.

Fool contributor Rich Smith does not own shares of any company named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked 60 out of nearly 23,000 raters. FormFactor is a Motley Fool Hidden Gems pick. The Fool has a disclosure policy.