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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.

The following ratings changes were generated on April 2.

MPS Group (MPS), which provides staffing, consulting and business solutions, has been upgraded to buy. For the fourth quarter, revenue rose 17% year over year to $570 million and earnings per share improved to 24 cents from 20 cents. For 2008, the market expects an improvement in full-year earnings per share to 94 cents from 86 cents in 2007. The company's debt-to-equity ratio is very low at 0.01, and its quick ratio of 2.17 demonstrates an ability to cover short-term liquidity needs. Net operating cash flow has increased 5.5% to $51.5 million from the year-ago period. The firm also exceeded a negative industry average cash flow growth rate of 32%.

Jo-Ann Stores (JAS), a specialty retailer that offers fabrics and crafts, has been upgraded to hold. An increase in net income, expanding profit margins and growth in earnings per share are offset by a disappointing stock-price performance. For the fourth quarter, net income growth increased 6.6% year over year to $27.5 million, exceeding the industry average for profit growth. We consider the company's gross profit margin strong at 45%.

Additionally, the net profit margin of 4.7% exceeds the industry average. The company's debt-to-equity ratio is very low at 0.23 and is currently below that of the industry average, implying very successful management of debt. However, its quick ratio of 0.10 is very weak and demonstrates a lack of ability to pay short-term obligations.

Shares have fallen 42% in the past year. Investors have so far failed to pay much attention to earnings improvements. Despite the heavy decline in its share price, this stock is still more expensive (when compared to its current earnings) than most other companies in its industry. Jo-Ann Stores had been rated sell since Jan. 18.

RBC Bearings (ROLL), which makes precision plain, roller and ball bearings, has been upgraded to buy. For the third quarter of 2007, revenue increased by 5% year over year to $80.4 million, while earnings per share remained flat at 44 cents. Net income increased 2.4% to $9.58 million in the same period. This year, the market expects an improvement in full-year earnings per share to $1.84 from $1.34. The company's debt-to-equity ratio is very low at 0.25, implying successful management of debt.

In addition, RBC Bearings has a quick ratio of 1.79, which demonstrates an ability to cover short-term liquidity needs. We consider the gross profit margin strong at 37% and has increased from the year-ago quarter. The net profit margin of 12% exceeds the industry average. RBC Bearings had been rated hold since May 11.

Gruma (GMK), a maker of corn flour, tortillas, wheat flower and related products, has been downgraded to hold. Strengths such as compelling improvement in net income, robust revenue growth and an attractive valuation are countered by a disappointing stock-price performance. For the fourth quarter, net income more than doubled year over year to $64.1 million and revenue increased 17% to $915.8 million. For 2008, the market is expecting a 27% contraction in full-year earnings per share to $1.22 from $1.66 in 2007.

The company's debt-to-equity ratio, 0.54, is low and lags the industry average, implying successful management of debt levels. However, its quick ratio of 1.00 is somewhat weak and could be cause for future problems. Shares have underperformed the S&P 500 Index, declining 23.98% from its price level of one year ago. The fact that the stock is now selling for less than others in its industry in relation to its current earnings does not justify a buy rating at this time. Gruma had been rated buy since Nov. 8, 2006.

BPZ Resources (BZP), an exploratory stage company, explores for and produces oil and natural gas in Peru and Ecuador. It has been initiated with a hold rating. Strengths such as a solid stock-price performance, growth in earnings per share and expanding profit margins are balanced by deteriorating net income and weak operating cash flow.

For the fourth quarter, the company narrowed its per-share loss to 6 cents from 8 cents. For 2008, the market expects an improvement in full-year EPS to a 67-cent profit from a loss of 32 cents in 2007. Although BZP's debt-to-equity ratio of 0.24 is very low, it is currently higher than that of the industry average, and its quick ratio of 0.85 is somewhat weak and could be cause for future problems.

Net operating cash flow has significantly decreased to a loss of $320,000 from the year-ago quarter. Shares have risen sharply over the past year, exceeding the rise in the S&P 500 Index. Regarding the stock's future course, our hold rating indicates that we do not recommend additional investment in this stock despite its gains in the past year.

Additional ratings changes from April 2 are listed below.

Ticker Company Name Change New Rating Former Rating
ENI ENERSIS SA Upgrade Buy Hold
GMK GRUMA SAB DE CV Downgrade Hold Buy
IPAR INTER PARFUMS INC Upgrade Buy Hold
MPS MPS GROUP INC Upgrade Buy Hold
NAFC NASH FINCH CO Upgrade Buy Hold
EGY VAALCO ENERGY INC Upgrade Buy Hold
HTLF HEARTLAND FINANCIAL USA INC Upgrade Buy Hold
TXCO TXCO RESOURCES INC Downgrade Hold Buy
JAS JO-ANN STORES INC Upgrade Hold Sell
ROLL RBC BEARINGS INC Upgrade Buy Hold
BZP BPZ RESOURCES INC Initiated Hold
KLIB KILLBUCK BANCSHARES INC Upgrade Hold Sell

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

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