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, our top trio of top headlines includes new downgrades for Amgen (NAS: AMGN) and Exelon (NYS: EXC) , but a sizeable increase in the price target for Visa (NYS: V) .

Amgen again
First up, Amgen. In a move that mimicked Argus Research's downgrade of last month, R.W. Baird downgraded Amgen to "neutral" this morning. Argus, as you may recall, had cited Amgen's 60% run-up in stock price since last August as a reason to take some chips off the table. Baird now points out that the stock has risen "+75% ... since August 2011" and argues that the stock's now "largely played out for the near/intermediate term."

But just as I disagreed with Argus last month (and with the stock up since, it looks like I was right about that), so, too, do I think Baird is missing the point here today. Yes, at 18.3 times earnings, Amgen looks expensive. But the truth is that with free cash flow of $5.2 billion per year, Amgen's really only selling for about 12.4 times annual cash profits -- not an unreasonable price for a near 12% grower paying a 1.7% dividend.

In short, Amgen may not be the cheapest stock on the planet, but it's still cheap enough to own.

No excellent day for Exelon
In contrast, with Exelon scoring its second downgrade in just three days, there's a growing consensus on Wall Street that the power company is not cheap enough and must get cheaper. On Monday, Citigroup was the first big Wall Street firm to hang a sell rating on Exelon. Now, today, we hear from that the analysts at UBS have also turned against the stock.

According to UBS, "weakening power prices" foreshadow "retail margin compression" at Exelon and will prevent the company from hitting "robust consensus EPS expectations" this year. Indeed, the situation may be even worse. Priced at nearly 15 times earnings, Exelon is actually expected by most analysts on Wall Street to post declining earnings over the next five years.

Granted, the company's 5.9% dividend yield is still generous and may even provide investors a bit of profit going forward -- but only if the stock itself doesn't fall. Given the valuation we're looking at today, though, the risk that capital losses will offset dividend gains is real and cannot be ignored. In short, Wall Street's right to be worried.

Visa not victorious
And finally -- and with apologies for ending on yet another down note -- we come to Visa. The stock just received a $10 increase in its price target (now $150) at Oppenheimer, which says that "August [loan] volumes indicate a meaningful acceleration in both U.S. credit volume and cross-border volume, which suggests building quarterly momentum." Combined with lower costs from "more moderate advertising expenses," Oppy sees Visa earning as much as $6.18 per share this year, and $7.26 next year.

There are just two problems with this: First, at a P/E ratio of 65 (or even at a price-to-free cash flow ratio of 21), Visa looks richly priced for the 20% long-term growth that most Wall Street analysts expect it to produce. Second, even if the more optimistic Oppenheimer is right, then having Visa go from $6.18 to $7.26 in per-share earnings is only 17.5% growth -- not 20%. This suggests that the stock may be too expensive even when taking its fans' projections as a given.

In short, Visa the company may be going gangbusters. Its stock, in contrast, costs too much to be considered a bargain today.

Fool contributorRich Smithholds no position in any company mentioned.Motley Fool newsletter serviceshave recommended buying shares of Visa and Exelon, as well as writing a covered straddle position in Exelon.

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