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Stock Upgrades, Downgrades from Ratings

Silicon Laboratories (SLAB), which makes integrated circuits, has been upgraded to a buy. The company maintains a largely solid financial position with reasonable debt levels, a solid stock performance and growth in net income and earnings per share.

These strengths should outweigh the company's somewhat disappointing return on equity. Silicon Laboratories recently said third-quarter earnings climbed to $20.4 million, or 37 cents per share, from $4.7 million, or 8 cents per share, in the year-ago period. Revenue increased 20% to $87.9 million. The company's stock has surged by 32.2% over the past year to a price level that is now somewhat expensive compared to the rest of its industry. Ratings believes the company's other strengths justify the higher price levels. Silicon Laboratories had been rated a hold since May 2006.

Pogo Producing (PPP), an oil and gas producer, has been upgraded to a buy. The company's strengths can be seen in multiple areas, such as its good cash flow from operations, expanding profit margins and solid stock price performance. These factors should outweigh the company's subpar growth in net income. In July, Pogo Producing agreed to be acquired by rival Plains Exploration & Production (PXP) for about $3.6 billion, or $60 a share. Plains Exploration & Production is paying for Pogo in part with its own stock, which also carries a buy rating.

On Thursday Pogo swung to a third-quarter loss of $45.9 million, or 79 cents a share, compared with earnings of $33.4 million, or 58 cents a share, a year ago, as the company recorded charges and sold operations. Pogo Producing had been rated a hold since March.

Community Health Systems (CYH), which operates hospitals, has been downgraded to a hold. While the company has multiple strengths, such as its robust revenue growth, reasonable valuation levels and growth in earnings per share, profit margins have been poor and the stock performance and return on equity have both been disappointing. In July, Community Health posted second-quarter net income of $53.8 million, or 57 cents a share, up 3% from a year ago, while revenue increased18% to $1.25 billion. The company had recently completed a $5.27 billion buyout of Triad Hospitals. Community Health Systems' stock has declined 14.4% from a year ago. There is nothing in the company's numbers that may help reverse this decline. Despite the decline, the stock is still selling for more than most others in its industry. Community Health Systems had been rated a buy since February.

Zimmer Holdings (ZMH), which makes orthopedic devices, has been downgraded to hold. The company maintains a largely solid financial position with reasonable debt and valuation levels and revenue growth, but it is also faced with deteriorating net income, disappointing return on equity and weak operating cash flow.

Third-quarter net income fell 76% to $44.5 million, or 19 cents a share, due to a $169.5 million charge to resolve a federal investigation regarding relationships between orthopedic providers and consulting surgeons. Revenue climbed 10% to $903.2 million. The stock is now trading at a higher level than a year ago, regardless of the company's weak earnings results and there is currently no conclusive evidence that warrants the purchase or sale of this stock. Zimmer Holdings had been rated a buy since October 2005.

Additional ratings changes are listed below.

Stock Upgrades, Downgrades
Company Name Ticker Change New Rating Former Rating
Community Health Systems CYH Downgrade Hold Buy
First Defiance Financial FDEF Downgrade Hold Buy
Healthstream HSTM Upgrade Buy Hold
iParty IPT Downgrade Sell Hold
Mattson Technology MTSN Downgrade Hold Buy
MFRI MFRI Downgrade Hold Buy
NCR NCR Upgrade Buy Hold
Iteris ITI Upgrade Hold Sell
Palomar Medical Technologies PMTI Downgrade Hold Buy
Pogo Producing PPP Upgrade Buy Hold
Silicon Laboratories SLAB Upgrade Buy Hold
Zimmer ZMH Downgrade Hold Buy
Comsys IT Partners CITP Upgrade Buy Hold
North Pointe NPTE Upgrade Hold Sell
Source: Ratings

As originally published, this story contained an error. Please see Corrections and Clarifications.
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