Stock Upgrades, Downgrades From TheStreet.com Ratings

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.

Brady (BRC Quote), which makes identification solutions and specialty products, has been downgraded to hold. Strengths including strong revenue growth, and attractive valuation levels and increasing net income are balanced by disappointing return on equity. For the second quarter of Brady's fiscal 2008, revenue rose 13% year over year, and earnings per share rose to 48 cents from 36 cents. With a low debt-to-equity ratio of 0.51 and a quick ratio of 1.74, the company demonstrates strong liquidity.

The company's share price has not logged much of a net change over the past year. With a price-to-earnings ratio of 14.43, the stock sells for less than others in its industry. However, this does not justify a buy rating at this time. Return on equity has decreased to 12% from 13% year over year and lags the industry average. This implies a minor weakness in the organization. Brady had been rated buy since TheStreet.com Ratings initiated coverage on March 3, 2006.

Pinnacle West (PNW Quote), a provider of energy services and energy-related products, has been downgraded to hold. The company's revenue growth, reasonable valuation and solid cash flow from operations are countered by feeble EPS growth and poor debt management. For the fourth quarter, revenue increased 4% year over year to $759.1 million, while EPS decreased to 3 cents from 10 cents over the same period. Return on equity has decreased to 8.5% from 9.2%. The company's gross profit margin of 20% is low and has decreased from the same quarter the previous year. Its net profit margin of 0.4% trails the industry average. Pinnacle West had been rated buy since TheStreet.com Ratings initiated coverage on March 3, 2006.

CTC Media (CTCM Quote), which operates a television network that offers entertainment programming in Russia, has been upgraded to hold. Strengths such as notable return on equity, robust revenue growth and solid financial position are weighed down by a premium valuation and weak operating cash flow. At 22%, CTC Media's return on equity significantly exceeds the industry average.

Powered by its strong earnings growth, this stock has surged 29% over the past year. This increase has driven CTC Media's P/E to 38.91, making it more expensive than other stocks in its industry. Net operating cash flow has decreased to $20.86 million year over year. CTC Media had been rated sell since TheStreet.com Ratings initiated coverage on Aug. 9.

CNA Surety (SUR Quote), through its subsidiaries, provides surety and surety-related products. It has been downgraded to hold. Strengths include revenue growth and a solid financial position, but weaknesses such as weak operating cash flow, disappointing stock-price performance and disappointing return on equity hold back the rating.

For the fourth quarter, revenue increased 3.5% year over year to $115.8 million, and EPS was flat at 49 cents. For 2008, the market expects a slight improvement in full-year EPS. The company's very low debt-to-equity ratio of 0.05 is lower than the industry average. Return on equity has slightly decreased year over year to 14%. Net operating cash flow has decreased 13% to $37.9 million from the year-ago quarter. CNA Surety had been rated buy since TheStreet.com Ratings initiated coverage on March 3, 2006.

Nektar Therapeutics (NKTR Quote), a biopharmaceutical company, has been upgraded to hold. For the fourth quarter, the company swung to profit of 42 cents a share from a loss of 43 cents a share a year ago despite a revenue decline. Nonetheless, the exit of Pfizer (PFE Quote) and the company's high leverage could prove detrimental to future prospects.

The earnings improvement shown in the fourth quarter was attributable to reduced expenses thanks to workforce reductions and a one-time gain of $79.18 million relating to the termination of a collaborative agreement with Pfizer. In February 2008, the company downsized its workforce by 20%, streamlining operations. Also, Nektar is in talks with third parties regarding a potential partnership for Exubera and/or NGI. Historically, Nektar derived a significant portion of revenue from an Exubera contract from Pfizer. On Oct. 18, Pfizer terminated the agreement, citing anemic sales.

At the end of the fourth quarter, Nektar had a total outstanding debt of $339 million, translating to a debt-to-equity ratio of 1.58, which exceeds the industry average. Also, expected declines in revenue may limit cash flow. Nektar Therapeutics had been rated sell since July 12, 2006.

Additional ratings changes are listed below.

Ticker	Company Name	Change	New Rating	Former Rating
ADAM	A D A M INC	Downgrade	Hold	Buy
ADBL	AUDIBLE INC	Upgrade	Hold	Sell
BRC	BRADY CORP	Downgrade	Hold	Buy
SUR	CNA SURETY CORP	Downgrade	Hold	Buy
ISNS	IMAGE SENSING SYSTEMS INC	Downgrade	Hold	Buy
IDSA	INDUSTRIAL SERVICES AMER INC	Upgrade	Buy	Hold
NKTR	NEKTAR THERAPEUTICS	Upgrade	Hold	Sell
LOOK	LOOKSMART LTD	Upgrade	Hold	Sell
PNW	PINNACLE WEST CAPITAL CORP	Downgrade	Hold	Buy
RUS	RUSS BERRIE & CO INC	Downgrade	Hold	Buy
SDIX	STRATEGIC DIAGNOSTICS INC	Downgrade	Hold	Buy
WNI	SCHIFF NUTRITION INTL INC	Upgrade	Buy	Hold
DIET	EDIETS.COM INC	Downgrade	Sell	Hold
ROME	ROME BANCORP INC	Upgrade	Buy	Hold
TONE	TIERONE CORP	Downgrade	Sell	Hold
DMND	DIAMOND FOODS INC	Downgrade	Hold	Buy
ATEC	ALPHATEC HOLDINGS INC	Upgrade	Hold	Sell
CTCM	CTC MEDIA INC	Upgrade	Hold	Sell
AHII	ANIMAL HEALTH INTL INC	Initiated	Hold
EIG	EMPLOYERS HOLDINGS INC	Initiated	Sell