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've got a new buy rating for Skyworks (NAS: SWKS) on tap, balanced out by downgrades for US Bancorp (NYS: USB) and Johnson Controls (NYS: JCI) .


The Sky's the limit... or not
We begin today's news with mixed signals for mobile communications chip maker Skyworks Solutions, which beat earnings with a stick Wednesday, and is getting pummeled with multiple analyst reactions in consequence. In quick succession, first Sterne Agee upgraded the stock (to buy), then Needham downgraded (to hold), then Oppenheimer tweaked its price target, which now rises to $35 a share.

Why the disparate reactions? It's inherent in the news. On one hand, Skyworks' $0.26 per share in fiscal-third-quarter profit was a penny short of what the company earned in last year's third quarter. On the other hand, though, it was at least a penny better than what Wall Street was expecting. On a pro forma basis (which is the way Wall Street prefers to read these things), Skyworks earned $0.45 per share last quarter, versus consensus predictions of just $0.44. Revenues also topped estimates. On the third hand, Skyworks' guidance of $0.50 to $0.51 in pro forma profits for the current quarter actually looks a bit light, in view of Street demands for $0.51 per share, period.

So how should investors react to all this news? If you ask me, there's no need to react at all. So far, all we know about Skyworks' results is the plain-vanilla GAAP numbers. And these numbers, which show trailing earnings of $205 million, don't look profitable enough to justify paying $5.5 billion for the stock. To win my endorsement, Skyworks is going to have to release its cash flow statement, which it did not do at earnings time, and show that it's generating way more free cash flow than its GAAP numbers reflect. Until it proves otherwise, the stock remains a hold -- not a buy.

U-S-B! U-S-B! U-S-B?
Speaking of "earnings beats," one company that's getting little investor love after exceeding expectations Wednesday is US Bancorp. The nation's fifth-largest banker confirmed that it earned $0.71 per share in the second quarter, a penny better than forecast and a whopping 18% better than what USB delivered last year. Better yet, the bank did this on only an 8% increase in revenues, which shows that USB is now squeezing more profit out of each revenue dollar it collects.

Unfortunately for shareholders, this performance wasn't enough to save USB from a downgrade at the hands of Oppenheimer, which now rates the stock a "perform" (read: hold). Why was USB unable to turn Oppy's frown upside down? We don't know the details of the analyst's ratings change just yet, but here are a couple of possibilities.

After a 24% run-up in share price over the past year, shares of USB aren't exactly cheap. Not only do this bank's shares cost more than similar slices of rivals Wells Fargo (NYS: WFC) or JPMorgan Chase (NYS: JPM) , but USB shares also fetch a pretty premium to the banker's own expected growth rate over the next five years. Meanwhile, JP's not expected to grow all that much slower than is USB (7% annually versus 8% for USB), while Wells is actually expected to grow faster than its rival, increasing earnings at the relative barn-burner pace of 10% per year over the next five years.

Long story short, it's not the bank that's bad, or the results: It's the share price, plain and simple.

Out-of-control spending at Johnson Controls
Contrast this with the situation at Johnson Controls, which, like everybody and his brother (it seems), has also just reported earnings. Here, the headline is not earnings growth (17% year over year), sales (up 2%), or even the massive increase in profitability of those sales.

Instead, the big news here is a statement buried deep within the press release, noting that "general weak demand in the automotive aftermarket was a negative for battery shipments in the quarter. At the same time, the prices for the spent battery cores we use in recycling lead hit an all-time high in the quarter, negatively impacting profitability." CEO Stephen Roell noted that earnings were negatively affected by a "downturn in Europe" that "slowed progress in our efforts to reduce operational inefficiencies."

Now what does this mean to you? First, it's further evidence of a weak car-sales market in Europe. The rising cost and limited supply of "spent battery cores" also points to consumers holding on to their cars longer, and junking them later -- which doesn't bode well for JC's business, or for America's Big Three automakers, either.

Responding to the news, analyst R.W. Baird quickly cut its rating on Johnson to "neutral," and if you ask me, that's the right call. Remember, Johnson's 11 P/E only looks cheap in light of analysts' expectations of 17% long-term profits growth. If growth is starting to slip, though, then the valuation starts to come into question -- and concerns over JC's $7 billion net-debt load, and its lamentable lack of free cash flow ($500 million burnt over the past 12 months), will also become more pressing. Long story short, investors should think twice before going long Johnson Controls.

Still want to invest in alternative energy stocks, despite Johnson's warnings? Before you do, take a look at our new (and for a limited time, free!) Fool report. You just might find in it The Only Energy Stock You'll Ever Need.

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

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

Fool contributor Rich Smith holds no position in any company mentioned, but The Motley Fool owns shares of JPMorgan Chase, and Motley Fool newsletter services have recommended buying shares of Wells Fargo. The Motley Fool has a disclosure policy.We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.


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