Each weekday, 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.
Avid Technology (AVID), which makes software and hardware products for the production, management and distribution of digital media content, has been downgraded to a sell from a hold. The company swung to a loss of $6 million in the second quarter, compared with a profit of $2.70 million in the same period last year. It also displays a disappointing return on equity, weak operating cash flow and a trend of declining earnings per share during the last two years. Avid's stock price has declined by 23.45% in the last 12 months, and while the stock slump could be one of the factors that help make the stock attractive down the road, right now is too soon to buy. Avid had been rated a sell since May 2006.
Financial services provider Lehman Brothers (LEH) has been downgraded to a hold from a buy. The company's revenue grew by 25.7% in the third quarter compared with the same period last year, which nonetheless trailed the industry average of 29.7%. Its gross profit margin of 80.20% has increased from the same period last year, although its debt-to-equity ratio of 22.23 is higher than the industry average, implying that there is very poor management of debt levels within the company.Lehman Brothers' net income declined by 3.2% to $887 million in the third quarter compared with last year, from $906 million in the same period in 2006. Its stock price has declined by 10.16% in the last three months and is down by 14.36% over the last 12 months. Lehman Brothers had been rated a buy since March 2006. Shaw Group (SGR), which operates as an engineering, technology, construction, fabrication, environmental and industrial services organization, has been upgraded to a buy from a hold. The company's revenue rose by 30.5% in the third quarter compared with the same period last year, higher than the industry average of 6.8%. Earnings swung to a profit of 67 cents per share in the third quarter from losses of 21 cents a share in the same period last year. Shaw has demonstrated a pattern of positive earnings per share growth over the past two years. However, TheStreet.com Ratings anticipate underperformance relative to this pattern in the coming year. The company's stock price increased by 147.72% in the last 12 months, and while any stock can fall in a major bear market, the stock should continue to move higher despite the fact that it has already enjoyed nice gains in the last year. These strengths outweigh the company's somewhat disappointing return on equity. Shaw Group had been rated a hold since April 2006. Non-asset based logistics provider Pacer International (PACR) has been downgraded to a hold from a buy. The factors that have impacted the rating are mixed. Its revenue grew by 3.6% in the second quarter compared with the same period last year, which lagged the industry average of 5.0%. Its return on equity also improved in that timeframe, which can be construed as a modest strength within the organization. However, its gross profit margin of 14.90% is low, and has decreased from the same period last year, and alongside this, its net profit margin of 2.60% trails that of the industry average. Pacer's net income dropped 13.8% to $12.50 million in the second quarter compared with the same period last year from $14.50 million. It had been rated a buy since October 2005. NBT Bancorp (NBTB - Get Report), the holding company for the NBT Bank serving northeastern Pennsylvania and central and northern New York, has been upgraded to a buy from a hold. The company's strengths include revenue growth of 7.2% in the second quarter, compared with the same period last year. Net operating cash flow increased 25.66% to $29.66 million during the same timeframe. NBT also shows expanding profit margins and reasonable valuation levels. These strengths outweigh the company's subpar growth in net income. It had been rated a hold since August 2007. Additional ratings changes are listed below:
|Stock Upgrades, Downgrades|
|Company Name||Ticker||Change||New Rating||Former Rating|
|CONSOLIDATED TOMOKA LAND CO||CTO||Downgrade||Hold||Buy|
|GREEN PLAINS RENEWABLE ENRGY||GPRE||Initiation||Sell||n/a|
|HIGHWAY HOLDINGS LTD||HIHO||Upgrade||Buy||Hold|
|MILLENNIUM BANKSHARES CORP||MBVA||Downgrade||Sell||Hold|
|Source: TheStreet.com Ratings|