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Stock Upgrades, Downgrades From TheStreet.com Ratings: March 13

Updated from 7:07 a.m. EDT



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.

The following ratings changes were generated on March 11, 2008.

Alexander's (ALX), a real estate investment trust, has been upgraded to buy. For the fourth quarter, net income swung to $33.9 million from a loss of $74.4 million in the year-ago quarter. Revenue increased 4.1% to $52.3 million in the same period. The company's return on equity significantly exceeds the industry average.

At 85%, gross margin is high, and a net profit margin of 65% outperformed the industry average. Net operating cash flow has increased 23% to $17.62 million year over year, beating the industry average growth rate. With a price-to-earnings ratio of 13.48, the stock is cheap relative to others in its industry. Alexander's had been rated hold since Nov. 11, 2006.

HCC Insurance (HCC), a provider of property and casualty, surety, group life, accident and health insurance coverage, has been downgraded to hold.

Strengths such as revenue and earnings per share growth as well as a solid financial position are balanced by weak operating cash flow, a disappointing stock-price performance and poor profit margins. For the fourth quarter, revenue increased 2.5% year over year to $614.4 million, and EPS increased to 85 cents from 69 cents over the same period. At 0.13, HCC's debt-to-equity ratio is very low, implying very successful management of debt levels. For 2008, market expects a contraction in full-year EPS to $3.23 vs. $3.38 in 2007.

Shares are down 27% in the past year, netting the stock a P/E of 6.62, which makes it cheap relative to others in its sector. However, due to other concerns, we feel the stock is still not a good buy right now. For instance, net operating cash flow has decreased 62% to $111.6 million year over year. HCC Insurance had been rated buy since TheStreet.com Ratings initiated coverage on March 10, 2006.

Huaneng Power (HNP), which develops, constructs, operates and manages thermal power plants in China, has been downgraded to hold.

The company's strengths, which include growth in net income and robust revenue growth, are countered by a disappointing stock-price performance. Net income increased by 21% year over year to $218.14 million. Revenue rose 16% to $1.76 billion. The company's debt-to-equity ratio of 1 is somewhat low, but its quick ratio of 0.4 is very weak and demonstrates a lack of ability to pay short-term obligations.

For the next year, the market is expecting a contraction of 10% in full-year earnings per share to $2.67. Shares declined 20% in the past year, netting the company a P/E of 8.15, which makes it cheap compared with the industry average. However, we feel its valuation does not justify a buy rating at this time. Huaneng Power had been rated buy since April 30.

ITT Educational Services (ESI), which provides postsecondary degree programs in the U.S., has been downgraded to hold. Strong revenue growth, notable return on equity and expanding profit margins are weighed by disappointing stock-price performance and poor debt management.

For the fourth quarter, EPS improved 24% year over year to $1.20. For 2008, the market expects an improvement in full-year earnings to $4.22 from $3.71 in 2007. Revenue improved 12% year over year to $230.4 million. Net operating cash flow increased 21% to $66.3 million. Although ESI's debt-to-equity ratio of 2.13 is very high, it is currently less than that of the industry average, and its quick ratio of 1.12 is somewhat strong.

Shares have fallen 37% in the past year, netting the stock a P/E of 13.39, which is lower than the industry average. Due to other concerns, however, we feel the stock is still not a good buy right now. ITT Educational Services had been rated buy since TheStreet.com Ratings initiated coverage on March 10, 2006.

Safeco (SAF), a property and casualty insurance company, has been downgraded to hold. Strengths include revenue growth, solid financial position and notable return on equity.

However, the company displays feeble EPS growth, deteriorating net income and poor profit margins. For the fourth quarter, revenue increased 0.3% year over year to $1.52 billion, and EPS declined to $1.56 from $1.96.

The company's debt-to-equity ratio is very low at 0.21, implying successful management of debt levels. Its gross profit margin is extremely low at 13.70%, and its net profit margin of 9.50% trails the industry average. Net operating cash flow has decreased 17% year over year to $210.6 million. Safeco had been rated buy since TheStreet.com Ratings initiated coverage on March 10, 2006.

Additional ratings changes from March 11 are listed below.

Ticker Company Name Change New Rating Former Rating
ALDA ALDILA INC Upgrade Buy Hold
ALX ALEXANDER'S INC Upgrade Buy Hold
BBSI BARRETT BUSINESS SVCS INC Downgrade Hold Buy
HCC HCC INSURANCE HOLDINGS INC Downgrade Hold Buy
HNP HUANENG POWER INTERNATIONAL Downgrade Hold Buy
ESI ITT EDUCATIONAL SERVICES INC Downgrade Hold Buy
TUC MAC-GRAY CORP Upgrade Hold Sell
NXY NEXEN INC Upgrade Buy Hold
PEGA PEGASYSTEMS INC Downgrade Hold Buy
PNK PINNACLE ENTERTAINMENT INC Downgrade Sell Hold
DORM DORMAN PRODUCTS INC Downgrade Hold Buy
RHD R H DONNELLEY CORP Downgrade Sell Hold
SAF SAFECO CORP Downgrade Hold Buy
SAFM SANDERSON FARMS INC Downgrade Hold Buy
SMTX SMTC CORP Upgrade Hold Sell
SONO SONOSITE INC Downgrade Hold Buy
SBIB STERLING BANCSHRS/TX Downgrade Hold Buy
HEP HOLLY ENERGY PARTNERS LP Upgrade Buy Hold
EGLT EAGLE TEST SYSTEMS INC Upgrade Hold Sell
EBS EMERGENT BIOSOLUTIONS INC Initiated Sell

This article was written by a staff member of TheStreet.com Ratings.

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