Wednesday's Top Upgrades (and Downgrades)

This series, brought to you by Yahoo! Finance, looks at which upgrades and downgrades make sense, and which ones investors should act on. Today, Chipotle (NYS: CMG) gets an upgrade, Buckle (NYS: BKE) gets "pantsed," and we find out why Wall Street is turning the volume down on Netflix (NAS: NFLX) . Let's dive right in, beginning with...

What goes down, must come back up
What a difference a day makes. Yesterday, as you may recall, weak sales numbers that have sent Chipotle tumbling sparked a downgrade from analysts at Argus. Today, however, a different team of analysts -- this time from Miller Tabak -- are adding a dash of Tabasco to investor hopes for the burrito-meister. According to MT, this $300 stock is at least $50 underpriced, and could quickly rebound to $350.

Unfortunately, while everyone's entitled to an opinion, Miller Tabak doesn't get to pick its own facts. At 37 times earnings, Chipotle still costs a lot for the 22% annualized long-term growth that Wall Street believes it will produce over the next five years. Just because the stock once cost more than $400 doesn't mean it will return to these levels anytime soon. Or even to $350.

Sorry, Wall Street: You were wrong about Chipotle before, and you're wrong about it this time, too.

Buckle up -- it's going to be a rocky ride
Toggling now from too-eager optimism to jumping-the-gun pessimism, jeans specialist Buckle isn't expected to report its earnings until sometime next month. Regardless, analysts at KeyBanc aren't waiting around for the bad news to hit them in the pants.

Despite calling the company "one of the best managed retailers in our coverage," KeyBanc nonetheless worries that the retailer's "current margin levels [are] unsustainable." According to StreetInsider.com, KeyBanc's key worries include the fear that "the recent comp deceleration, which was previously cited as weakness due to a lack of colored denim, might have its roots in weaker macroeconomic conditions. We also believe that Buckle has driven much of its recent comp gains via AUR (average unit retail) and we believe this will be less of a tailwind going forward." (Translation: Buckle's jeans cost too much.)

But here's the good news: Even if Buckle's pants are pricey, its stock isn't. Right now, the shares cost less than 12 times earnings. That's a little expensive for the 9% long-term growth Wall Street expects Buckle to produce over the next five years, but a tidy 2% dividend, and regular special dividends, help cushion the blow. Plus, Buckle generates above-average free cash flow from its business, meaning that the stock is actually probably a bit cheaper than its P/E makes it seem.

Long story short, Buckle may not be a great bargain at today's prices, but it's certainly not so expensive that you have to rush right out and follow KeyBanc's advice to sell the stock.

Netflix: A streamer getting sold down the river
And finally, the story you've been waiting for: Netflix. By now, you've probably heard the news. Netflix reported earnings yesterday, meeting expectations for revenues, and beating on earnings. In response... investors sold the stock off by some 25%. Ouch.

So what did investors not like about this news? Guidance. Netflix warned yesterday that its goal of adding 7 million net new subscribers this year is going to follow the plot line of A Bridge Too Far. Great movie, by the way. But TheWall Street Journal panned it as a "flimsy" excuse, and it seems Wall Street agrees.

This morning, everyone and his uncle cut earnings expectations for the stock -- from the most optimistic Oppenheimer ($100 a share) to middle-of-the-road Barclays ($80) to the most pessimistic Northland Securities, which pegs Netflix's fair value at just $42 a share.

Of the three, Northland is probably closest to the mark. Here's why: Netflix now sells for 34 times earnings. Analysts had the company pegged for 16% long-term earnings growth before the earnings warning, and are likely to reduce that estimate now that Netflix has admitted it won't hit its targets for the year. Result: Netflix is overpriced by a factor of two based on old estimates, and by a factor of "more" depending on what the estimates wind up being post-warning. Either way, the stock is not worth the $60 it fetches today. It might not even be worth the $42 Northland ascribes to it. Caveat investor.

While investors are still trying to determine the final victor in the streaming content arena, it's hard to argue about who is winning the war for tablet riches so far, Apple. The company just beat expectations for its blockbuster iPad, and should see some massive growth as it rolls out into the Chinese market. Read all about this opportunity, and many more, in our new premium Apple research report. It comes with a full year of updates, too, so make sure to claim your copy today.

Fool contributorRich Smithholds no position in any company mentioned, but The Motley Fool owns shares of Netflix, Chipotle Mexican Grill, and The Buckle.Motley Fool newsletter serviceshave recommended buying shares of Netflix, The Buckle, and Chipotle Mexican Grill. The Motley Fool has adisclosure policy.

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