Exxon Mobil Corporation (XOM), Shoe Carnival, Inc. (SCVL), Universal Technical Institute, Inc. (UTI): Tuesday’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 headlines include an upgrade for Shoe Carnival, Inc. (NASDAQ:SCVL) , but downgrades for each of Exxon Mobil Corporation (NYSE:XOM)Mobil and Universal Technical Institute, Inc. (NYSE:UTI) .

Shoe Carnival stumbles, doesn’t fall
No two ways about it: Shoe Carnival, Inc. (NASDAQ:SCVL)’s fourth-quarter earnings report yesterday looked like a disaster. Revenues dropped 16% sequentially to an “adjusted” $0.16 per share, while earnings were down 73%. The dismal results only met analyst earnings estimates, and actually fell short on revenues. Meanwhile, same-store sales are projected to decline as much as 4% year over year in the current quarter.

And yet, this morning, analyst Standpoint Research looked at Shoe Carnival, Inc. (NASDAQ:SCVL)’s results and called the stock a buy. With shares that stumbled not at all on the earnings news, actually perking up on the upgrade and trading 1% higher today, it appears investors agree. Are they right?

I’m not so sure they are.

I mean, on one hand, yes, priced at roughly 14 times earnings, paying a 1% dividend, and projected to grow at 15% annually over the next five years, Shoe Carnival, Inc. (NASDAQ:SCVL) shares do look attractive at first glance. And if fourth-quarter results looked poor in comparison to third-quarter results, the year-over-year picture’s not so clearly bad. While earnings were down from fourth-quarter 2011, sales, at least, were up a good 13%.

Still and all, for me the story here all comes down to cash production — or rather, the lack of it. Even if Shoe Carnival, Inc. (NASDAQ:SCVL) is still reporting decent “earnings,” the company’s free cash flow number has turned firmly negative. FCF at the company has been declining for three years running, and last year, for the first time in eight years, Shoe Carnival burned cash rather than generating it. Personally, that’s not a trend I want to invest in — or a stock I want to buy.

ExxonMobil slips
Could it be that the right way to invest today is to buy stocks that Wall Street tells you not to buy? If you think that’s the case, then you might want to take a look at good old Exxon Mobil Corporation (NYSE:XOM), subject of a downgrade to “perform” at Oppenheimer this morning. Oppy may be worried by the effects of a big pipeline rupture in Arkansas last week. But investors should focus on whether the stock itself is still intact.