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TSC Ratings' Upgrades, Downgrades: Trinity

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 June 6.

Trinity Industries (TRN Quote), which provides products and services for the industrial, energy, transportation and construction sectors, has been upgraded to buy. For the first quarter, revenue increased 8.5% year over year to $898.9 million, and earnings per share increased to 81 cents from 74 cents. The debt-to-equity ratio is somewhat low at 0.81, implying a relatively successful effort in the management of debt levels. Return on equity has improved slightly -- when compared to the same quarter one year prior -- to 17%, but trails the industry average. With a price-to-earnings ratio of 10.77, the stock trades at a discount to others in its industry. Trinity Industries had been rated hold since Feb. 22.

Capitol Federal Financial (CFFN Quote), which operates as the holding company for Capitol Federal Savings bank, has been upgraded to buy. For the second quarter, revenue declined 0.2% year over year to $109.8 million, while earnings per share improved to 16 cents from 14 cents. For 2008, the market expects an improvement in full-year EPS to 62 cents from 44 cents in 2007. Net operating cash flow has increased 52% to $21.1 million from the year-ago quarter. Shares have risen faster than the S&P 500 in the past year, netting the stock a price-to-earnings ratio of 89.89, which makes it more expensive than others in its industry. We feel the company's other strengths justify the premium valuation. Capitol Federal Financial had been rated hold since TheStreet.com Ratings initiated coverage on June 5, 2006.

Ingram Micro (IM Quote), which along with its subsidiaries provides information technology products and supply chain solutions, has been upgraded to buy. For the first quarter, revenue increased 4% year over year to $8.58 billion, and earnings per share climbed to 37 cents from 21 cents. For 2008, the market expects an improvement in full-year EPS to $1.75 from $1.56 in 2007. Net operating cash flow has more than doubled to $43.4 million from the year-ago quarter. With a price-to-earnings ratio of 10.99, the stock trades at a discount to other in its industry. Ingram Micro had been rated hold since Jan. 22.

Southwest Casino (SWCC Quote), which through its subsidiaries operates casinos, has been upgraded to hold. Strengths such as solid stock-price performance and a solid financial position are balanced by deteriorating net income, disappointing return on equity and poor profit margins. For the third quarter, revenue declined 19% year over year to $4.8 million, and earnings per share swung to a loss of 2 cents from a profit of 3 cents. The debt-to-equity ratio is low at 0.73, implying successful management of debt levels. The quick ratio of 0.60, displays weak liquidity. The company's gross profit margin is currently lower than what is desirable at 28%. Its negative net profit margin of 14% is significantly below that of the industry average. Net operating cash flow has significantly decreased to $340,000 when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower. Share price has jumped 71% in the past year. Despite the solid performance, we do not believe the stock warrants further investment at this time. Southwest Casino had been rated sell since July 16, 2007.

O'Reilly Automotive (ORLY Quote), a specialty retailer of automotive and aftermarket parts, tools, supplies, equipment and accessories, has been downgraded to hold. Strengths such as revenue growth, expanding profit margins and a solid financial position are countered by a disappointing stock-price performance discouraging return on equity and weak operating cash flow. For the first quarter, revenue increased 5.4% year over year to $646.2 million, and earnings per share declined to 40 cents from 42 cents. At 48%, the gross profit margin is strong. The net profit margin of 7.2% is above that of the industry average. The company's debt-to-equity ratio is very low at 0.06, implying very successful management of debt levels. The quick ratio of 0.43, however, demonstrates an inability to pay short-term obligations. Return on equity has slightly decreased from the same quarter one year prior to 12%, which trails the industry average. Shares have fallen 30% in the past year. O'Reilly Automotive had been rated buy since TheStreet.com Ratings initiated coverage on June 5, 2006.

Additional ratings changes from June 6 are listed below.