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, we'll be looking at why one analyst just announced it's downgrading Boeing (BA) , while two more are bucking a fickle herd to up their price targets on Dick's Sporting Goods (DKS) and Diana Shipping (DSX) . Let's take these in order...

Beginning with Boeing
For the longest time, investment banker Oppenheimer has been a big fan of Boeing. Back in January, Oppy urged investors to go ahead and buy Boeing despite worries that the company's new 787 "Dreamliner" plane seemed to have an annoying habit of catching on fire. The stock's up 74% since .

Today, though, with Boeing sitting within a whisker of the analyst's $140 price target, Oppy is curbing its enthusiasm, pocketing its profits, and cutting its rating on Boeing to perform (i.e. hold). And while I certainly can't blame the analyst for "declaring victory and going home," I still disagree with the implied assumption that Boeing shares have no farther to run.

Sure, at today's P/E of 24 times earnings, Boeing shares look a little pricey relative to anticipated long-term-earnings growth of 12%. But consider: Over the past 12 months, Boeing generated $9 billion in free cash flow. It reported only $4.3 billion of that -- less than half -- as GAAP "net income." If you value Boeing on its real cash profits, therefore, rather than on the accounting fiction that is GAAP, it's apparent that Boeing shares now cost only a little more than 11 times free cash flow.

I think that's a cheap price to pay for 12% growth, and a near-2% dividend. And that's why I think Boeing is still a buy.

Unsporting investors spurn Dick's
Even stranger than Oppenheimer's negative call on superb performer Boeing is the divergent reactions we're seeing to a pair of earnings reports at Dick's Sporting Goods and Diana Shipping today.

Dick's, as you may have heard , reported $0.40 in per-share profits yesterday, a penny ahead of estimates, and with superior revenue growth to boot. Nevertheless, investors sold off the stock mildly in Tuesday trading, and they're sending it down another 2% or more today. Meanwhile, analysts who follow the company are uniformly positive, with three separate stock shops -- UBS, Imperial Capital, and Monness Crespi & Hardt -- all raising their target prices on Dick's to anywhere from $57 to $65 (Dick's shares currently cost less than $55).

So who's right? The analysts, or the investors who are ignoring them?

Honestly, I have to give this round to the amateurs -- because the professionals are getting Dick's all wrong. Priced at 21 times earnings today, Dick's shares look significantly overpriced relative to long-term-growth estimates of 15%. More importantly, though, Dick's P/E ratio is predicated on earnings which overstate the company's true profitability. Over the past 12 months, as Dick's reported "earning" $329 million, the company actually generated only $39 million in real free cash flow. Indeed, even operating cashflow didn't measure up to the earnings that Dick's is claiming.

This strongly implies that Dick's earnings are of low quality, and not worth anywhere near the 21-times multiple that investors are paying for them. It suggests Dick's shares are overpriced, and doomed to fall... just as they're doing today.

No good deed goes unpunished at Diana
Another stock getting whacked by investors this morning -- even as analysts praise it -- is Diana Shipping. Diana's had a tough year so far, but yesterday brought a rare bit of good news when management reported better than expected revenues from its ships, and a smaller than anticipated per-share loss of $0.04.

That was good enough to win the stock a higher price target ($13, up from $12) from Deutsche Bank, but not enough to win it any support among investors -- who sold off the stock by 6% yesterday, and shaved off a further 2% today. Now does that sound fair?

Unfortunately, probably, yes.

You see, just losing less money than feared isn't enough to make Diana a good investment. Yesterday's loss was enough to push Diana into the red for the whole past 12-month period. So the "100 P/E" ratio you see reflected on Yahoo! Finance today actually gives Diana too much credit. The stock's real P/E is infinity -- and it's got negative free cash flow to boot.

Long story short, unless Diana gets its ship turned around, and starts earning some profits again, investors are just going to have to be satisfied with the 50% gain that Diana shares have produced over the past year. Deutsche's predicted $13 share price is a pipe dream, and Diana won't deserve it until it starts producing some real cash.

Fool contributor Rich Smith has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.