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Stock Upgrades, Downgrades from TheStreet.com Ratings

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.

Hamburger chain operator Burger King Holdings (BKC) has been upgraded to a hold. While the company has experienced revenue growth, good cash flow from operations and notable return on equity, it has not been careful managing its balance sheet.

First-quarter profit climbed 23% from a year ago to $49 million, or 35 cents a share, while revenue increased 10% to $602 million. The company said private-equity firms TPG Capital, Bain Capital and Goldman Sachs Funds plan to sell 23 million shares on the public market. The firms, which took the company public last year, also plan to grant underwriters the option to buy an additional 3.45 million shares to cover over-allotments.

The debt-to-equity ratio of 1.23 is relatively high when compared with the industry average, suggesting a need for better debt level management. Burger King Holdings had been initiated with a sell rating in June.

PetSmart (PETM), a pet-supplies retailer, has been downgraded to a hold. The company holds a largely solid financial position with reasonable debt levels, revenue growth and notable return on equity, but it is also marked by poor profit margins, a generally disappointing stock performance and unimpressive net income growth.

Third-quarter profit slipped 7% from a year ago to $29.5 million, or 23 cents a share, while revenue rose 8% to $1.12 billion. Current return on equity exceeded its ROE from a year ago, a clear sign of strength within the company.

Same-store sales, or sales at stores open at least a year, rose 1.4%. The gross profit margin is currently lower than what is desirable, coming in at 29.70%, and down from a year ago. The net profit margin of 2.60% also trails the industry average. PetSmart had been rated a buy since December 2005.

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