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 tech moves on Wall Street, as analysts give Heckmann Corporation an upgrade, but dropkick Deckers Outdoor , and tweak their bets on fertilizer plays Intrepid Potash , PotashCorp , and Mosaic . Let's dive right in, beginning with...

What the heck? Maybe Heckmann's not so bad after all!
First up today is oil drilling play Heckmann,whichhelps keep drilling companies stocked with the water they need to perform "fracking" operations in search of oil and natural gas. This morning, analyst Ladenburg Thalmann announced it was upgrading shares of the company -- down 38% over the past 52 weeks -- to neutral.

Why? Maybe it's an affinity between companies sharing double-"nn"-ed last names. Maybe it's simply because the analyst recognizes it was right about Heckmann being a sell last year, but realizes that after a big fall, often comes the bounce back. Either way, looking at Heckmann today, Ladenburg likes what it sees.

And maybe you should, too. After all, while still technically "unprofitable," Heckmann's started to turn things around. Each of its last two quarters, the company generated positive free cash flow -- and it's been a good two years since we could last say that about Heckmann. Analysts think Heckmann will produce a GAAP profit this year, too, and go on to grow earnings at a rate of 25% annually over the next five years. While debt remains a concern, and the company's still free cash flow (FCF) negative on a trailing-12-month basis, Heckmann's starting to show signs of life. Its upgrade to "neutral" is well-deserved... and maybe only a prelude to an actual upgrade to "buy."

Deckers drop-kicked
If only we could say the same for Deckers Outdoor, which just lost its buy rating, as R.W. Baird downgrades to "neutral." While apparently attractively priced at a P/E of just 9.2, Deckers has a series of problems that deny it the right to a buy rating.

For one thing, the company's heavily weighed down by debt -- more than $200 million net of cash on hand. For another, it's burning cash at a frenetic pace. Trailing-12-month FCF at the company is only slightly negative, but it's poised to get worse. Last quarter, Deckers burned through $230 million in cash, a pace that exceeded last year's Q3 cash-burn by more than 50%. Meanwhile, prospects for improvement seem modest at best, with most analysts projecting the company won't grow earnings even 8% per year over the next five years.

Long story short, Deckers's P/E may be low. But it's still not low enough to merit a buy rating.

Can you spin gold from fertilizer?
And finally, we come to what's probably the highlight of today's ratings news: a series of three new price targets for some of the globe's bigger producers of potash and phosphate-based fertilizers, Intrepid Potash, PotashCorp, and Mosaic.

Last week, Mosaic beat analyst estimates with its fiscal Q2 earnings report. According to, despite reporting a 16% decline in sales and a 30% slide in profits, Mosaic managed to disprove the skeptics with a $1.05 per share quarter that exceeded estimates of $0.88 per share. Additionally, the company reported that its capacity utilization in potash production was a respectable 70%, while phosphate utilization topped 80%.

The news was good enough to win Mosaic a bump in target price from analysts at BMO Capital Markets, who predict that Mosaic shares will fetch $61 apiece a year from now. On the other hand, BMO revised its expectations for Intrepid Potash and PotashCorp downwards, reducing price targets to $22 and $49, respectively.

But do they deserve the reductions? Does Mosaic deserve the target price hike? Not necessarily, and I'll tell you why.

Starting with Mosaic, this stock costs more than 13 times earnings. Yet it's only expected to grow earnings at 8% over the next five years... and more to the point, is actually shrinking earnings right now. That's hardly an encouraging trend, and when taken with the fact that Mosaic is still generating free cash flow at only a small fraction of the rate at which it claims to be earning profits in the first place, suggests that any earnings growth at all could be very hard to come by indeed.

Meanwhile, PotashCorp shares Mosaic's cash-generation troubles, generating only $0.45 worth of real cash profits for every $1 it claims to be "earning." The situation at Intrepid Potash is even more frightening. That one's actually burning cash, even as it's claiming to earn nearly $98 million a year.

Result: Even at P/E ratios just a little below, and just a little above 16, PotashCorp and Intrepid Potash don't look cheap enough to justify an investment today.

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Whose advice should you take -- mine, or that of "professional" analysts like Ladenburg Thalmann, R.W. Baird, and BMO Capital Markets? Check out my track record on Motley Fool CAPS, and compare it to theirs. Decide for yourself whom to believe.Fool contributor Rich Smithdoes not own (or short) shares of any company named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 348 out of more than 180,000 members. The Motley Fool owns shares of Heckmann and has the following options: Long Jan 2014 $4 Calls on Heckmann and Short Jan 2014 $3 Puts on Heckmann. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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