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TSC Ratings' Updates: Whirlpool

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 Thursday, July 3.

First up is AstraZeneca (AZN Quote), which was upgraded to buy from hold. The company develops, manufactures and markets prescription drugs, biologics and vaccines in the areas of cardiovascular, gastrointestinal, neuroscience, oncology, respiratory and inflammation and infection worldwide.

Despite its quarterly revenue growth, the 10% year-over-year growth underperformed the industry average of 12%. Its gross profit margin is currently very high, coming in at 90%, having increased from the same quarter the previous year. Regardless of the strong gross profit margin results, the net profit margin of 19% trails the industry average. Net operating cash flow has slightly increased to $2.39 billion, or by 9% when compared to the same quarter last year.

AstraZeneca has reported somewhat volatile earnings recently. However, we feel it is poised for earnings-per-share (EPS) growth in the coming year. During the past fiscal year, AstraZeneca reported lower earnings of $3.73 a share, vs. $3.85 in the prior year. This year, the market expects an improvement in earnings ($4.43 a share vs. $3.73). AstraZeneca had been rated hold since February 2008.

Next up is Minas Buenaventura (BVN Quote), which is downgraded to hold. The company engages in the exploration, mining and processing of gold, silver, and various metals in Peru and internationally.

Over the same quarter one year prior, revenue rose by 37.5%. The gross profit margin for Minas is currently very high, coming in at 70%. Regardless of the strong results of the gross profit margin, the net profit margin of -28% is in-line with the industry average. The current debt-to-equity ratio, 0.36, is low and falls below the industry average, implying successful management of debt levels. Although the company had a strong debt-to-equity ratio, its quick ratio of 0.75 is somewhat weak and could be cause for future problems.

Minas Buenaventura's net income has significantly decreased by 272% when compared to the same quarter one year ago, falling from $36.66 million to -$62.97 million. Net operating cash flow has significantly decreased to -$480.35 million, or by 2,179% when compared to the same quarter last year. In addition, when compared to the industry average, the firm's growth rate is much lower. Minas Buenaventura had been rated buy since July 2006.

We also downgraded EastGroup Properties (EGP Quote) to hold. This real estate investment trust (REIT) focuses on the development, acquisition and operation of industrial properties in the U.S.

EastGroup has improved EPS by 24% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive EPS growth over the past two years. We feel that this trend should continue. This trend suggests that the performance of the business is improving.

Over the past fiscal year, EastGroup increased its bottom line by earning $1.10 a share, vs. 87 cents in the prior year. This year, the market expects an improvement in earnings ($1.21 a share vs. $1.10). The company, on the basis of net income growth from the same quarter one year ago, has significantly outperformed the S&P 500 and exceeded the REIT industry average. Net income increased 23% over the same quarter one year prior, rising from $6.59 million to $8.09 million. We consider its growth profit margin of 37% to be strong.

The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time. Net operating cash flow has declined marginally to $13.63 million, or by 6.3% when compared to the same quarter last year. In addition, when comparing the cash-generation rate to the industry average, the firm's growth is significantly lower. EastGroup Properties had been rated buy since July 2006.

Next up is Washington Federal (WFSL Quote), which also was downgraded to hold. The company operates as the holding company for Washington Federal Savings, which provides various financial services in the U.S.

Since the same quarter one year prior, revenue rose by 22%. The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the thrifts and mortgage finance industry. The net income increased by 6% when compared to the same quarter one year prior, going from $33.48 million to $35.45 million. Its gross pro0fit margin is 40.5%, which we consider to be strong.

Net operating cash flow has significantly decreased to $10.28 million, or by 63% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower. Washington Federal had been rated buy since May 2007.

And finally, Whirlpool (WHR Quote) was downgraded to hold. This company manufactures and markets home appliances worldwide. Its principal products include laundry appliances, refrigerators, cooking appliances, dishwashers and mixers and other small household appliances.

The company's revenue growth -- a 5% increase over the same quarter one year prior -- significantly trails the industry average of 48%. Compared to other companies in the household durables industry and the overall market, Whirlpool's return on equity exceeds that of both the industry average and the S&P 500.

Whirlpool's gross profit margin is rather low; currently it is at 16.5%. It has decreased from the same quarter the previous year. Along with this, its net profit margin of 2% trails that of the industry average. Net operating cash flow has significantly decreased to -$338 million, or by 121% when compared to the same quarter last year. Whirlpool had been rated buy since July 2006.

Additional ratings changes are listed below.