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Stock Upgrades, Downgrades From TheStreet.com Ratings

TheStreet.com Ratings Staff

Each business day, TheStreet.com Ratings updates its ratings on the stocks it covers. The proprietary ratings model projects a stock's total return potential over a 12-month period, including both price appreciation and dividends. Buy, hold or sell ratings designate how the Ratings group expects these stocks to perform against a general benchmark of the equities market and interest rates.

While the ratings model is quantitative, it uses both subjective and objective elements. For instance, subjective elements include expected equities market returns, future interest rates, implied industry outlook and company earnings forecasts. Objective elements include volatility of past operating revenue, financial strength and company cash flows.

However, the rating does not incorporate all of the factors that can alter a stock's performance. For example, it doesn't always factor in recent corporate or industry events that could affect the stock price, nor does it include recent technology developments and competitive dynamics that may affect the company.

For those reasons, we believe a rating alone cannot tell the whole story, and that it should be part of an investor's overall research.

The following ratings changes were generated on Feb. 15.

Dassault Systemes (DASTY Quote), which develops three-dimensional and product life-cycle management software solutions, has been upgraded to buy. The company's strengths include revenue growth, its financial position, a reasonable valuation, growth in earnings per share and expanding profit margins. We feel these strengths outweigh somewhat disappointing return on equity.

For the fourth quarter, Dassault posted net income of $115.8 million, or 97 cents a share, vs. $108.4 million, or 91 cents a share, in 2006. This EPS increase of 6.6% continues a two-year pattern of earnings growth, and we feel that this trend should continue. Since the year-ago quarter, revenue rose by 12%. The company's debt-to-equity ratio of 0.17 is very low.

At 82.70%, Dassault's gross profit margin is very high and has increased year over year. Despite gross-margin growth, the company's net profit margin of 21% trails the industry average. Dassault Systemes had been rated hold since June 29, 2007.

Argo Group (AGII Quote), an underwriter of property and casualty insurance products, has been upgraded to buy, largely thanks to strong year-over-year revenue growth of 9.2%.

Argo posted fourth-quarter earnings of $23.5 million, or 79 cents a share, vs. $31.4 million, or $1.42 a share a year ago. Return on equity has fallen to 5.6% from 12% a year ago and lags the industry average. In addition, Argo's gross profit margin is rather low at 20%, and its net profit margin of 8.9% trails the industry average.

Over the past year, shares have tumbled 32%. With a price-to-earnings ratio (P/E) of 12.4, the stock is still somewhat more expensive than others in its industry. We feel, however, that other strengths compensate for this. Argo Group had been rated hold since Dec. 11.

Delphi Financial (DFG Quote), a life insurance company, has been downgraded to hold thanks to a changing market environment.

An economic downturn may further aggravate current softness in the insurance market. In addition, higher unemployment data along with a slowdown in housing may put pressure on demand for insurance products such as workers' compensation and property insurance further reducing prices.

Furthermore, a tightening credit market with higher delinquencies may hamper the value of Delphi's investment portfolio. Any notable decline in investment spreads, higher-than-expected claims or adverse regulatory developments may hurt the company's financial performance.

For 2007, Delphi's revenue increased 11% to $1.57 billion due to higher growth in premiums and fee income as well as an increase in investment income. Net income increased 16% to $164.5 million, due in part to a slight improvement in operating margins. Management expects earnings to increase to a range of $3.45 to $3.60 a share for 2008. In addition, the company's return on equity has surpassed the industry average over the past three years. Delphi Financial had been rated buy since TheStreet.com Ratings initiated coverage on Feb. 14, 2006.

Acergy (ACGY Quote), an offshore oil and gas construction contractor, has been downgraded to hold. The company shows strong revenue growth and a solid financial position. However, net income is deteriorating, profit margins are poor and return on equity has disappointed.

For the fourth quarter, Acergy posted year-over-year revenue growth of 23%, slightly outpacing the industry average. Despite solid revenue improvement, the company swung to a loss of $18.8 million, or 11 cents a share, vs. a profit of $68 million, or 36 cents a share, in 2006. This year, the market expects an improvement in full-year EPS to $1.14 from 72 cents. Acergy's debt-to-equity ratio of 0.70 low overall, but higher than the industry average. With a P/E of 27.57, shares are more expensive than the industry average. Acergy had been rated buy since Aug. 24, 2006.

Intel (INTC Quote), a chipmaker, has been downgraded to hold. The company exhibits strong growth in EPS, net income and revenue. On the other hand, the stock has declined in price during the past year.

In the fourth quarter, Intel announced a year-over-year EPS improvement of 46%, continuing a pattern of growth. We feel that this trend should continue. Net income increased by 51.3% to $2.27 billion over the same period. During the past fiscal year, the company increased EPS to $1.18 vs. 86 cents in 2006. For 2008, the market expects an EPS increase to $1.40. In spite of a strong gross profit margin, the company's net profit margin of 21% trails the industry average.

After a year of stock price fluctuations, the net result is that share price has not changed very much. Although weak earnings growth may have played a role in this flat result, the performance of the overall market was similar. The stock's P/E of 17.34 trails the industry average, but does not justify a buy rating at this time. Intel had been rated buy since Aug. 20.

Additional ratings changes from Feb. 15 are listed below.