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 track the long-term performance of Wall Street's best and brightest -- and its worst and sorriest, too.

And speaking of the worst ...
Shares of Wal-Mart (NYSE:WMT) are fighting this morning's market tumble, and ... well, I suppose there are worse ways to start off the week than having a Wall Street analyst upgrade your stock. But did it have to be Rochdale Securities doing the upgrading?

Calling Wal-Mart a "favorable blend of defensiveness ... as well as cyclical upside" this morning, Rochdale upgraded the stock from "hold" to "buy." Why? Rochdale explains it "high level of conviction" about this stock by listing both the obvious points in Wal-Mart's favor:

  • A strong position in groceries and "low cost leadership."
  • An "extraordinary competitive position."
  • A chance to improve profits if the economy turns around.

As well as a few points less obvious:

  • An accelerated share buyback program.
  • Shares having more "upside" relative to Wal-Mart's rivals.
  • Rochdale's belief that not only will the economy turn around, but Wal-Mart will grow its earnings in the second half.

Put it all together and Rochdale thinks the shares are worth not the $52 and change they currently fetch, but about $65. Nice.

But is Rochdale right?
I have to tell you Fools, that as much as I'd like to see the titan of American retail get back on the growth track, Rochdale's record doesn't inspire a whole lot of confidence in this turnaround story. This analyst is currently batting under .500 on its retail picks, although to be fair CarMax is straddling positive territory and checks in just barely negative. Looking at the company's record, it has been accurate on slightly over 48% of its CAPS picks to date. Here's a closer look at the company's retail record :


Rochdale Says:

CAPS says:

Rochdale's Picks Beating (Lagging) S&P By:

Home Depot (NYSE:HD)



38 points




(1 point )

O'Reilly Automotive (NASDAQ:ORLY)



(13 points)

Best Buy (NYSE:BBY)



(30 points)

And yet, the more I look at the numbers, the more I suspect Rochdale's got only its usual, 50-50 chance of getting proven right on today's upgrade. Wal-Mart shares just don't look cheap enough to "buy" -- not to me.

When I look at Wal-Mart, sure, I see a decent dividend payer (2.1%). And the company pumps out its fair share of cash flow. Subtract capital spending, and Wal-Mart is generating $11.3 billion in cash profit annually. Between the dividend and the cash, I think the stock's probably somewhere close to fairly valued -- at least not too expensive to own.

But that doesn't mean I'd actually go out and buy the stock on Rochdale's say-so. For one thing, strong as it is, Wal-Mart's free cash flow still lags reported GAAP "profits" significantly. For another, even if free cash flow was up to par with what Wal-Mart says it's earning, the stock wouldn't look particularly cheap at a 15.2 P/E, versus consensus estimates of only 11.9% long-term growth.

As for Wal-Mart's shares having greater "upside" relative to their competitors -- that contention also seems in doubt. I mean, I suppose you can make the argument that Wal-Mart is cheaper than someone like (NASDAQ:AMZN), what with the latter's 50-plus P/E and all. But rivals like Kohl's (NYSE:KSS) and Target (NYSE:TGT) both sport valuations in the mid-teens, right around where Wal-Mart trades. What's more, Wall Street expects both chains to outperform Wal-Mart in the growth department, growing faster than 13% per year in each case, while Wal-Mart struggles to reach 12% growth.

Foolish takeaway
Put it all together and I just don't see a compelling "buy" thesis here, folks. At most, Wal-Mart looks like a "hold" to me. So if you're shopping for bargains, I'd suggest you look elsewhere.

(Need some hints on where to look? Click here.)