This Just In: Upgrades and Downgrades – UBS AG (USA) (UBS), Citigroup Inc. (C), JPMorgan Chase & Co. (JPM)

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.” Today, we’ll show you whether those bigwigs actually know what they’re talking about. To help, we’ve enlisted Motley Fool CAPS to track the long-term performance of Wall Street’s best and worst.

Who’s hot, who’s not — in banking stocks
As winter winds down, and spring is in the air, a young investor’s heart turns to love. And like teens experiencing their first high-school crush, there’s nothing so cute as bankers in love.

Earlier this week, a mysterious European gentleman caller with the initials “UBS” came a-courting American “banker next door” Citigroup Inc. (NYSE:C). UBS AG (USA) (NYSE:UBS) upgraded its swain from like to love. (Actually, it went from neutral to buy, but that’s not nearly as poetic.) And defying the notion that “you can’t put a price on love,” UBS went ahead and did just that, arguing that Citigroup is worth $62 a share, or about a third more than Citi shares currently cost.

So what’s got UBS falling head over heels for Citi? Several things, actually. According to the analyst:

Citigroup Inc. (NYSE:C) has a lot of money “trapped” on its balance sheet today. Money that will ultimately be released to flow back to shareholders in the form of dividends and share buybacks.

An improving economy and especially a better housing market could provide “tailwinds” to the company’s earnings growth.

Alternatively, if the economy sags, and the housing market relapses, then this will hurt earnings at Citi’s relatively pricier banking rivals Morgan Stanley (NYSE:MS) and Bank of America Corp (NYSE:BAC) — with the result that Citigroup shares begin to look better by comparison.

Result: “Either way, Citi should outperform” its peers, according to UBS.

Penny for your thoughts
So in essence, what UBS AG (USA) (NYSE:UBS) is making here is a “heads Citigroup Inc. (NYSE:C) wins, tails it doesn’t lose” argument. Problem is … I think UBS is wrong about that. Indeed, there’s a very real chance that Citi shares will lose out even if the economy does do well.

Why? At the risk of being blunt, because the shares simply cost too much. Consider: Priced north of 19 times earnings today, Citi shares may look attractive relative to the 48 times earnings multiple at B of A, or the infinity-times-earnings ratio at unprofitable Morgan Stanley. But 19 times earnings still isn’t a particularly attractive price relative to the sub-13% long-term earnings growth that most analysts project for Citi, and the stock’s meager 0.1% dividend yield does little to make up the difference.

What’s more, if you look out a year, UBS AG (USA) (NYSE:UBS)’s suggestion that Citi is selling at a big discount to its peers doesn’t seem to hold water, either. Fact is, the bank’s forward P/E ratio of 9.0 (based on 2014 earnings estimates) isn’t all that much cheaper than the 9.2 ratio at B of A. It’s practically indistinguishable from Morgan Stanley’s ratio — also 9.0.