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 ...
One day after beating analysts' consensus earnings estimates for Q1 2007, snowmobile, ATV, and motorcycle maker Polaris (NYSE:PII) received mixed reviews from Wall Street last week. In separate reports, Standard & Poor's first warned of continued sales declines in Polaris' flagship all-terrain vehicle segment, and reiterated a strong sell recommendation on the stock. Then Wedbush Morgan came out with an opposite recommendation, upgrading Polaris from hold to buy. Contrary to S&P's forecast, Wedbush argued that ATV sales will rebound in the second half of the year, inventory growth will stabilize, and the company will enjoy a boost from stronger sales of utility vehicles and motorcycles.

Further illustrating the disconnect were the analysts' respective "price targets" -- where they expect Polaris shares to be trading one year from now. With S&P predicting $29, and Wedbush calling for $57, we've got one analyst saying Polaris is worth twice the value the other imputes to it.

In a situation such as this, I'd ordinarily compare the records of both analysts as reported by Motley Fool CAPS. Unfortunately, S&P is one of the few analysts we don't track on CAPS -- making that idea a nonstarter. But we do track Wedbush. In fact, I wrote about the company's sterling record in relation to sports apparel's Quiksilver (NYSE:ZQK) just last month, when the broker was riding high as the 27th-best-ranked player in all of CAPS Land. So relegating S&P in the role of "control group," let's examine how Wedbush's record might suggest it knows a bit more (or less) about Polaris' future than does S&P. Here's how Wedbush stacks up:

Since we last checked in on it, Wedbush has suffered a significant decline in its CAPS rank, falling 249 basis points in just more than 30 days. Dragging its record down have been recent picks of:

That said, Wedbush remains in the top 5% of CAPS players, buoyed by its long-term success in finding winners such as:

Will its endorsement of Polaris fit snugly into Wedbush's long-term trend of out-guessing its peers, or more resemble the firm's recent struggles to maintain its lead? As much as I'd like to see Wedbush succeed, I fear it's making a wrong call here. Why? Because Wedbush's record on Polaris to-date is not at all good. Initiating coverage with a hold rating back in October, Wedbush watched Polaris zoom significantly higher than the rest of the stock market. In just six months' time, the stock has in fact outperformed the S&P 500 by a good 13 points.

The fact that Wedbush is now switching its stance smacks of closing the garage door after the ATV has already gunned its motor and sped off over the hill. While I could certainly be wrong, my instinct is to follow S&P's lead on this one -- that Polaris investors face significantly more risk to the downside, than potential for gains on the up.

Looking for a third opinion? Or if you count my assessment, a fourth? The current score leader on Polaris has already racked up 28 points worth of market-outperformance on this stock. To learn what this mystery stock picker thinks about Polaris, click here.

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 220th out of nearly 27,000 raters. The Fool has a disclosure policy