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Stock Upgrades, Downgrades From Ratings

Each business day, 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 are from Feb. 7, 2008.

Health Net (HNT), a health care services company, has been upgraded to buy on strong fourth-quarter earnings and a healthy balance sheet.

On Feb. 5, Health Net reported income of $123.4 million, or $1.10 a share, vs. $84.8 million, or 72 cents a share, in 2006. Total revenue increased 11.7% to $3.58 billion year over year.

The company is relatively under-leveraged, with a total debt balance of $545.43 million and a debt-to-equity ratio of 0.29, which is below the industry average. Furthermore, HNT has been generating a healthy cash flow from operations.

Recently, Health Net was awarded a contract by the Department of Veterans Affairs Healthcare Network Upstate New York and also launched an online Behavioral Health Resource Center, which will be managed by one of its subsidiaries. Health Net also plans to expand its Medicare Advantage (MA) service areas in 2008.

Increasing health care costs and increasing competitive pressure remain the major causes of concern. Health Net had been rated hold since Nov. 8.

CNet Networks (CNET), an interactive media company, has been upgraded to hold. The company has compelling growth in net income and a solid financial position. However, the stock has not performed well in the past year.

Net income growth for CNet from the same quarter one year ago has significantly exceeded the industry average. Profit skyrocketed 3717.2% year over year, from $5.31 million to $202.62 million. The company has also reported significant earnings per share improvement over the past two years. However, we expect the company to underperform this pattern in the coming year.

The stock has lagged the S&P 500, declining 13.88% over the past year. This price decrease is not necessarily a negative; it could make the stock attractive down the road. Right now, however, we believe that it is too soon to buy. CNet had been rated sell since Apr. 30.

Unidas (CU), a provider of beer and soda to Chile and Argentina, has been downgraded to hold. In spite of good revenue growth, a solid financial position and impressive stock price performance, the company's poor profit margins weigh it down.

The company's year-over-year revenue growth of 25.2% exceeds the industry average. Additionally, EPS has improved in the past year. Unidas' current debt-to-equity ratio, 0.34, is below the industry average, implying successful management of debt levels.

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