This Just In: More Upgrades and Downgrades

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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." The pinstripe-and-wingtip crowd is entitled to its opinions, but we have some pretty sharp stock pickers down here on Main Street, too. And we're not always impressed with how Wall Street does its job.

So perhaps we  shouldn't be giving virtual ink to "news" of analyst upgrades and downgrades. And we wouldn't -- if that were all we were doing. Fortunately, in "This Just In," we don't simply tell you what the analysts said. We also show you whether they know what they're talking about.

This morning, analysts were talking up shares of First Solar (NAS: FSLR) , but talking down prospects for Starbucks (NAS: SBUX) and Amgen (NAS: AMGN) . Let's find out why.


Starbucks is no star
The nation's most famous coffeehouse reported earnings last week, and like First Solar yesterday (more on that later), it declined to fess up to its free cash flow situation in its report. That was OK, of course -- Wall Street was pretty sure it wanted to sell the stock anyway.

Unfortunately for shareholders, this sentiment is overflowing from July into August, as this morning Argus Research downgraded Starbucks stock to "hold." That's actually understandable, both as a reaction to last week's news, and as a reasoned response to Starbucks' numbers.

Consider: At 24 times earnings, Starbucks was already looking pricey based on consensus estimates of 19% long-term earnings growth. When you consider, though, that Starbucks notched only 13% sales growth last quarter and predicts growth as slow as 10% in the current quarter, that "19%" number starts to look questionable. Argus is downgrading the shares on concerns that growth may not be up to snuff ... and they're right to do so.

Argus against Amgen, too
Another stock catching the pointy end of Argus' analytical shaft this morning is Amgen. Like Starbucks, Amgen reported earnings only recently. Unlike Starbucks, Amgen beat expectations with a stick, reporting $1.83 per share versus an expected $1.54 (and versus $1.37 earned a year ago -- 33.5% growth!) So why is Argus downgrading?

Hard to say, but if I had to take a guess, I'd say Argus is just harvesting profits here, from a very successful stock recommendation. Over the past 12 months, Amgen shares have rocketed nearly 60%, easily beating the S&P 500's 9% return. The downside to this spectacular performance, however, is that it's left the shares looking pretty overvalued -- at least at first glance.

P/E ratios on Amgen are now pushing 18, which looks high relative to 11% long-term growth estimates. But here's the thing: Amgen has generated $5.2 billion in positive free cash flow over the past year. When you divide that number into the company's market cap, what you discover is that at a price-to-free cash flow ratio under 12, the stock's actually not that overpriced after all -- even after its 60% run-up.

Bulls on parade at First Solar
The rest of the market may be in a funk, but Thursday is turning out to be a very good day indeed to be a First Solar shareholder. Last night, the thin-film solar specialist reported earning a tidy $1.27 per share in Q2, a good 40% ahead of what Wall Street was expecting. Shares are surging in response to the news, and the upgrades are starting to roll in as well. This morning, both RW Baird and Cantor Fitzgerald raised their ratings to the equivalent of "buy."

And that wasn't even the end of the good news. First Solar then proceeded to up its revenue guidance to somewhere from $3.6 billion to $3.9 billion -- again, ahead of consensus -- while simultaneously confirming that it is beginning work on a 139-megawatt solar farm in California. So ... is this the all-clear signal we've been waiting for? Is it time to dive right back into First Solar?

Not so fast. First Solar said a lot of nice things about itself yesterday, I'll grant you. But what sounded loudest of all was what it didn't mention: cash. Throughout its entire earnings release, the one fact glaringly absent was any mention of how First Solar's cash flow has performed lately. Given that last year, the firm burned through $760 million in negative free cash flow (all the while claiming it was almost at breakeven, in terms of profits), this is a pretty crucial bit of data. Unfortunately, First Solar has decided to sit on it until the time comes when it must file its 10-Q statement with the SEC.

My advice: Keep an eye out for that 10-Q. Should make for some interesting reading.

Investors and bystanders alike have been shocked by First Solar's precipitous drop over the past 12 months, and now the stakes have never been higher for the company. Are they done for good, or are they ready for a rebound? If you're looking for our recommendation on how to play First Solar along with continuing updates and guidance on the company whenever news breaks, we've created a brand- new report that details every must know side of this stock. Get started now.

Whose advice should you take -- Rich's, or that of "professional" analysts like Baird, Cantor, and Argus?Check out Rich's track record on Motley Fool CAPS, andcompare it with theirs. Decide for yourself whom to believe.

The article This Just In: More Upgrades and Downgrades originally appeared on Fool.com.

Fool contributorRich Smithdoes not own (or short) shares of any company named above. You can find him on CAPS, publicly pontificating under the handleTMFDitty, where he's currently ranked No. 306 out of more than 180,000 members.The Motley Fool owns shares of Starbucks.Motley Fool newsletter serviceshave recommended buying shares of Starbucks and writing covered calls on Starbucks.  We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Fool has adisclosure policy.

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