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TSC Ratings' Upgrades, Downgrades

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 May 6.

Adobe Systems (ADBE), which offers businesses mobile software and services, has been upgraded to buy. For the first quarter, revenue grew 37% year over year to $890.5 million, and earnings per share increased to 38 cents from 24 cents. Net income increased 53% to $219.4 million in the same period. For 2008, the market expects an improvement in full-year EPS to $1.90 from $1.21 in 2007. Although Adobe's debt-to-equity ratio of 0.12 is very low, it exceeds the industry average. Its quick ratio of 3.06 clearly demonstrates the ability to cover short-term cash needs. Net operating cash flow has increased 48% to $399.3 million when compared with the same quarter last year. With a price-to-earnings ratio of 29.74, the stock trades at a similar valuation to others in its industry. Adobe Systems had been rated hold since Jan. 23.

Wipro (WIT), which provides information technology services and products, including business process outsourcing, has been upgraded to buy. For the fourth quarter, revenue grew 31% year over year to $1.37 billion, while EPS remained flat at 14 cents. For 2008, the market expects an improvement in full-year EPS to 63 cents from 56 cents for 2007. The company's debt-to-equity ratio, 0.38, is low, implying successful management of debt levels. Return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Wipro had been rated hold since March 18.

Gen-Probe (GPRO), which develops, manufactures and markets nucleic acid probe-based products, has been upgraded to buy. For the first quarter, revenue grew 17% year over year to $106.2 million, while earnings per share climbed to 58 cents from 40 cents. For 2008, the market expects an improvement in full-year EPS to $1.75 from $1.58 in 2007. With no debt to speak of, Gen-Probe has a debt-to-equity ratio of zero. Its quick ratio of 9.63 clearly demonstrates the ability to cover short-term cash needs. The stock's rise in price has outperformed the S&P over the past year, and we still see more upside potential for this stock, despite the nice gains. Gen-Probe had been rated hold since March 18.

Lazard (LAZ), a financial advisory and asset management firm, has been upgraded to buy. At 220% the company's return on equity far exceeds the industry average. For the fourth quarter, revenue increased 25% year over year to $623.3 million, and earnings per share increased to $1.04 from 78 cents. For 2008, the market is expecting a contraction of 4% in full-year EPS to $2.65 from $2.76 in 2007. Net operating cash flow was $192.30 million. With a price-to-earnings ratio of 13.59, the stock trades at a discount to others in its industry. Lazard had been rated hold since Jan. 31.

Valeant (VRX), which develops, manufactures and markets a range of pharmaceutical products, has been upgraded to hold. Strengths such as an impressive record of EPS growth, an increase in net income and expanding profit margins are countered by a disappointing stock-price performance, weak operating cash flow and poor debt management. For the fourth quarter, the company narrowed its loss per share to 8 cents from 16 cents a year ago, while revenue declined 3.2% year over year to $240.2 million. For 2008, the market expects an improvement in full-year EPS to 55 cents from 27 cents in 2007. Net operating cash flow has decreased 83% to $7.5 million when compared to the year-ago quarter. The company's cash-flow growth rate is lower than others in the sector. Shares have declined 19% in the past year. Despite the falling price, the stock still sports a price-to-earnings ratio of 48.7, making it more expensive than others in its industry. Valeant had been rated sell since Dec. 4.

Additional ratings changes from May 6 are listed below.

Ticker Company Name Change New Rating Former Rating
ADBE Adobe Systems Upgrade Buy Hold
ALVR Alvarion Downgrade Sell Hold
GKSR G&K Services Downgrade Hold Buy
AMOT Allied Motion Technologies Upgrade Buy Hold
INXI INX Inc. Upgrade Buy Hold
VRX Valeant Pharmaceuticals Upgrade Hold Sell
IIIN Insteel Industries Upgrade Buy Hold
KNSY Kensey Nash Upgrade Buy Hold
MOLXA Molex Upgrade Buy Hold
NSHA Nashua Corp. Downgrade Hold Buy
WCC Wesco International Upgrade Buy Hold
WIT Wipro Upgrade Buy Hold
CTDH CTD Holdings Upgrade Hold Sell
GPRO Gen-Probe Upgrade Buy Hold
LAZ Lazard Upgrade Buy Hold
MORN Morningstar Upgrade Buy Hold
TGP Teekay LNG PARTNERS Upgrade Hold Sell
UBNK United Financial Bancorp Upgrade Buy Hold
DMND Diamond Foods Upgrade Buy Hold
CF CF Industries Downgrade Hold Buy
ACOR Acorda Therapeutics Upgrade Hold Sell
GASS Stealthgas Downgrade Hold Buy
SCOP Scopus Video Networks Upgrade Hold Sell

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

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