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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 March 27.

Perry Ellis (PERY Quote - Cramer on PERY - Stock Picks), an apparel company, has been upgraded to buy. For the fourth quarter, revenue decreased 8.3% year over year to $212.3 million, and earnings per share fell to 65 cents from 68 cents. This company has reported somewhat volatile earnings recently, but for 2008, the market expects an improvement in full-year EPS to $1.98 from $1.82 in 2007.

The company's debt-to-equity ratio of 0.64 is somewhat low overall but high compared with the industry average. However, its quick ratio of 1.70 is high and demonstrates strong liquidity. Return on equity has improved slightly from the year-ago quarter to 10%. This can be construed as a modest strength in the organization.

With a price-to-earnings ratio of 12.73, the stock is significantly cheaper than others in its industry. Perry Ellis had been rated hold since Jan. 15.

Endo Pharmaceuticals (ENDP Quote - Cramer on ENDP - Stock Picks), which makes drugs for treating and managing pain, has been downgraded to hold. Robust revenue growth, a solid financial and notable return on equity are held back by a disappointing stock-price performance. For the fourth quarter, revenue rose 17% year over year to $304.6 million, and earnings per share climbed to 38 cents from 11 cents. The company has no debt to speak of and a quick ratio of 2.30.

Net operating cash flow has increased 14% to $79.3 million from the year-ago quarter. Despite an increase in cash flow, the company's average is still marginally south of the industry growth rate of 22%. Shares have fallen 20% in the past year, netting the stock a price-to-earnings ratio of 13.76, making it cheaper than others in its space. Right now, however, we believe that it is too soon to buy. Endo Pharmaceuticals had been rated buy since TheStreet.com Ratings initiated coverage on March 24, 2006.

American Eagle Outfitters (AEO Quote - Cramer on AEO - Stock Picks), a clothing retailer, has been downgraded to hold. Strengths such as revenue growth, a solid financial position and notable return on equity are countered by a disappointing stock-price performance. For the fourth quarter, revenue increased 2.3% year over year to $995.4 million, and earnings per share remained flat at 66 cents. The company has no debt to speak of and a quick ratio of 1.73, which demonstrates an ability to cover short-term liquidity needs. Return on equity has improved slightly to 29.8%.

Shares have fallen 41%, in the past year, netting the stock a price-to-earnings ratio of 9.95, which makes it cheaper than others in its industry. Nevertheless, we believe that it is too soon to buy. American Eagle Outfitters had been rated buy since TheStreet.com Ratings initiated coverage on March 24, 2006.

Health Net (HNT Quote - Cramer on HNT - Stock Picks), which delivers managed health care services through health plans and government-sponsored managed care plans, has been downgraded to hold. U.S. medical costs are increasing rapidly due to longer life spans and greater prevalence of chronic illnesses, leading to more demand for treatment of ongoing illness and long-term services. Advancements in medical technology and increased spending have also added to the rising costs. To contain these costs, the government is changing funding levels and initiating rate cuts for Medicare and Medicaid programs. Health Net generates the majority of its revenue from these programs. Lower funding levels could significantly impact future results.

The health services space is highly competitive. Furthermore, the company has been increasing its premium prices on account of soaring healthcare costs as well as facing large-group enrollment declines. Any increase in the premium prices could further reduce enrollments. On the other hand, increasing state government restrictions on premium prices could also impact the top line.

For the fourth quarter, revenue increased 12% to $3.58 billion and net income soared 46% to $123.4 million. The company was recently awarded a contract by the Department of Veterans Affairs Healthcare Network -- Upstate New York. This is expected to increase memberships. Health Net had been rated buy since Feb. 7.

UAL Corp. (UAUA Quote - Cramer on UAUA - Stock Picks), which offers transportation through its subsidiary United Air Lines, has been downgraded to sell. Shares have fallen 43% in the past year. The company's debt-to-equity ratio is very high at 3.03 and exceeds the industry average, implying very poor management of debt levels. Its quick ratio of 0.60 demonstrates an inability to cover short-term liquidity needs.

Return on equity has greatly decreased year over year to 14% and trails the industry average. This is a signal of major weakness within the corporation. Net operating cash flow has significantly decreased year over year to $132 million. The company's gross profit margin of 9.3% is very low and its net profit margin of -1.1% trails the industry average. UAL Corp. had been rated hold since TheStreet.com Ratings initiated coverage on March 5, 2007.

Additional ratings changes from March 27 are listed below.