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 its worst and sorriest, too.

And speaking of the best ...
Within a few hours of Internet guard dog Symantec's (NASDAQ:SYMC) release of a boffo earnings report last evening, investment bankers Jefferies & Co upgraded shares to "buy." According to the analyst responsible, "Low expectations for June, a significant new product cycle, a substantial chance of an increased level of share buybacks, and a potential takeout make the risk/reward attractive here."

Sound reasonable? We'll look at the logic of Jefferies' argument in a sec, but first, a quick checkup on its record since last we visited in the wake of its upgrade of Limited Brands a couple weeks ago. Back then, as you may recall, Jefferies was stylin' with a 95.21 CAPS rating, and 55% accuracy for its picks. Today, those numbers are little changed: CAPS rating up a hair to 95.55, accuracy down a notch to 54%. Not bad.

A few of the right recs it's made over the last several trading days (yes, Jefferies has been busy), boosting its overall score, include:

And a couple of ideas that have hurt its accuracy:

Now, about this Symantec buy rec in particular. Translating from the original analyst-ese, Jefferies seems to be saying you should buy Symantec because:

• The Internet is still a dangerous place, and people need regular virus inoculations.
• Yet even so, no one thinks they can keep this up.
• Which in turn depresses the stock price, and creates an opportunity for buybacks.
• Or for a savvy strategic investor to swoop in and buy up the whole shop, virtual lock, stock, and barrel.

Sound reasonable to you? It does to a lot of people, and I'll bet the upgrade had more than a little to do with Symantec's 7% surge in price so far today. That said, with $404 million in profits earned in 2006, the stock is now trading for 44 times trailing earnings, and analysts by and large expect it to grow at only 10% per year. Um, Jefferies? I don't know about you, but to me, that sounds pretty pricey on the surface.

My guess, though, is that Jefferies dug a bit deeper here, and noticed that even though Symantec failed to give investors a cash flow statement along with its earnings release, based on its results through the four quarters leading up to yesterday's news, it had generated $1.2 billion in free cash flow in those trailing 12 months, more than twice its reported GAAP net income for the same period. Thus, on a cash profits basis, Symantec is considerably cheaper than meets the GAAP eye.

Moreover, the company's balance sheet, while not exactly "clean," is also not highly leveraged. Long story short, I wouldn't be at all surprised to see Jefferies proved right on this one.

Second opinions, anyone?
But don't just take it from me. Symantec also enjoys the blessing of deep value guru Philip Durell and the crew at Motley Fool Inside Value, who recommended the stock nearly one year and 16% appreciation ago. To see why they love it, claim your free trial to the service right here

And if you're still not convinced, then by all means, click on over to Motley Fool CAPS and see what our No. 1 scorer on Symantec has to say about the company. Like the free trial of Inside Value, reviewing pitches on CAPS is absolutely free.

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 190th out of more than 28,000 raters.