This Just In: More 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." While the pinstripe-and-wingtip crowd is entitled to its opinions, we've got some pretty sharp stock pickers down here on Main Street, too. (And we're not always impressed with how Wall Street does its job.)

Given this, 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.

Today, we're going to take a look at three high-profile ratings moves on Wall Street, as analysts tweak their price targets for Transocean (NYS: RIG) , SINA (NAS: SINA) , and (NAS: PCLN) .

RIG's riding high
$125 for a barrel of oil? $5 for a gallon of gas? That's all bad news for you and me, but some analysts think it's about to pay off for patient investors in contract driller Transocean. Transocean shareholders have sailed stormy seas of late. Shares are down 35% over the past 12 months. Yesterday's earnings report didn't do much to improve the picture, with earnings falling $0.04 short of the consensus, and profit margins contracting across the board. But according to several analysts, the bad news is priced into this stock already, and the stage is set for recovery.

This morning, analysts at FBR Capital and RBC Capital both raised price targets on the stock, FBR anteing up an 8% hike to $70, while RBC chipped in an 11% rise to a more conservative $60 price target. In between these targets, UBS and BMO are upping their numbers as well, to $62 and $65, respectively. All this looks like a lot of money to pay for a company that lost $5.7 billion last year. But UBS says Transocean is worth the price, because the "fundamentals" are improving.

Are they really, though? Lower profit margins, a net loss for the year, and free cash flow of just $765 million -- less cash than Transocean has generated in any year since 2006 -- doesn't look like much of an improvement to me. At 23 times free cash flow, and burdened by nearly $8 billion in net debt, Transocean still has work to do if it's to turn this ship around.

The SINA situation
As happy as analysts seem to be with Transocean's weak results, they're not nearly so thrilled with China's SINA. The Internet portal returned to profitability last quarter, yesterday reporting a $0.14-per-share profit. True, revenue estimates suggest the company will fall short of consensus in its fiscal first quarter. But on the bright side, management says its Weibo microblogging service (think "China's Twitter") will begin to produce "meaningful" revenues in the second half of this year.

Wall Street responded to the news by slicing either 30% off of SINA's price target (Brean Murray), or 16% (Stifel Nicolaus). Most investors, however, seem to be giving SINA the benefit of the doubt, and the shares were up 13% in early morning trading.

Much as I'd love to run with the bulls on this one, I have no interest in getting trampled. I know China's got 100 billion Internet users or whatever, and that everyone says this is why you need to own a piece of Baidu (NAS: BIDU) , a few shares of Shanda, and of course the Chinese Twitter, too. But here's the thing: Successful Internet firms like Baidu are turning a massive customer base into massive free cash flows, and growing strongly (47% long-term growth predicted). SINA, in contrast, is growing less than half that fast, and last year, its free cash totaled a mere $11.6 million. That's not nearly as bad as the firm's reported $302 million loss makes things sound, but I still don't see how you can justify paying 405 times free cash flow for SINA.

The priceline is right
So far, I'm afraid I'm sounding pretty pessimistic about these stocks -- so rather than end this column on a down note, let's take a look at one stock I do like:

At a share price of $635 and change, priceline stock doesn't look "cheap," but analysts at Benchmark, RBC, and Stifel all named higher price (targets) for the stock this morning -- $692, $725, and $750 respectively. Aggressive targets? Sure. But if you ask me, priceline deserves them.

Consider: Based on yesterday's earnings report, priceline shares now sell for 30 times earnings. The stock's cheaper if you net out its cash reserves (about 28 times earnings, ex-cash), and cheaper still if you net out cash reserves and value the company on its $1.3 billion in free cash flow. This calculation brings the shares down to an enterprise value-to-free cash flow ratio of less than 23 -- comfortably below the 25% annualized growth rate Wall Street projects for priceline.

When you consider, too, that Wall Street has consistently under-estimated priceline's growth rate in each of the last four quarters, I'd say the buy thesis for this one only gets stronger, and the analysts are right to recommend buying That's why I'm heading over to Motley Fool CAPS to join with these analysts in upgrading I think they'll outperform the market. Do you? Follow along and find out.

Whose advice should you take -- mine, or that of "professional" analysts like Benchmark, RBC, and Stifel? Check out my track record on Motley Fool CAPS, and compare it to theirs. Decide for yourself whom to believe.

If you're looking for more profitable investing ideas in the Internet world, read the Fool's new -- and free -- report on the industry:The Next Trillion Dollar Revolution.

At the time thisarticle was published Fool contributorRich Smithdoes not own shares of, nor is he short, any company mentioned above.He does, however, have public recommendations available on 57 other companies. Check them out on Motley Fool CAPS page, where he goes by the handle "TMFDitty" -- and iscurrently ranked No. 409 out of more than 180,000 CAPS members.The Motley Fool owns shares of Transocean.Motley Fool newsletter serviceshave recommended buying shares of Baidu, SINA, and Motley Foolhas adisclosure policy.We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors.

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