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TSC Ratings' Upgrades, Downgrades: Comcast

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 Thursday, May 15.

Comcast (CMCSA), a cable operator, has been upgraded to buy. For the first quarter, revenue improved 14% year over year to $8.39 billion, while earnings per share declined to 24 cents from 26 cents. For 2008, the market expects an improvement in full-year EPS to 91 cents from 83 cents in 2007. Net operating cash flow has increased 15% from the year-ago quarter to $2.26 billion. The firm also exceeded the industry average cash flow growth rate of 1.9%.

Gross profit margin is rather high at 60%, but net profit margin of 8.7% trails the industry average. The company's debt-to-equity ratio is somewhat low at 0.77, implying successful management of debt levels. However, its quick ratio of 0.30 is very weak and demonstrates an inability to pay short-term obligations. Comcast had been rated hold since Nov. 20.

Ikon Office Solutions (IKN), which operates as an independent channel for document management systems, has been upgraded to buy. For the second quarter, revenue increased 0.8% year over year to $1.06 billion, while EPS remained flat at 24 cents.

Margins improved as cost of revenue and operating expenses as a percentage of revenue was lower compared to a year ago. Gross profit margin improved 41 basis points to 34.84% from 34.43% a year ago. Operating profit margin was relatively unchanged at 4.86%. Moreover, despite net income declining 26.2% to $22.5 million, EPS remained relatively flat at 24 cents, because of a decrease in the average outstanding shares.

Ikon's quick ratio of 1.32 indicates its ability to cover any short-term cash requirements. Return on equity was 6.6%, up 20 basis points from 6.4% a year ago, led by a decline of 18% to $1.42 billion in shareholders' equity. For 2008, Ikon increased its EPS guidance to range from 92 cents to 98 cents, up from the previous forecast of 88 cents to 94 cents. Ikon Office Solutions had been rated hold since Jan. 30.

PS Business Parks (PSB), a real estate investment trust, has been upgraded to buy. For the first quarter, revenue increased 5.3% year over year to $70.6 million, while earnings per share declined to 18 cents from 27 cents. The company's debt-to-equity ratio is very low at 0.05, implying very successful management of debt levels. Net income has decreased 11% year over year to $16.6 million. For 2008, the market is expecting a contraction of 8.6% in full-year EPS to 74 cents. With a price-to-earnings ratio of 78.78, the stock trades at a substantial premium to its peers. PS Business Parks had been rated hold since June 29, 2007.

Cognex (CGNX), which provides machine vision products, has been upgraded to buy. For the first quarter, revenue grew 19% year over year to $60.5 million, and earnings per share climbed to 20 cents. For 2008, the market expects an improvement in full-year EPS to 88 cents from 61 cents in 2007.

Gross profit margin is very high at 72%, and net profit margin of 14% significantly outperforms the industry. The rise in share price over the past year has outperformed the S&P 500, netting the stock a price-to-earnings ratio of 37.24, which puts it at a premium to its sector peers. Cognex had been rated hold since July 26, 2006.

Advisory Board (ABCO), which provides best practices research, decision support tools and analysis to the health care industry, has been downgraded to hold.

Strengths such as robust revenue growth, earnings-per-share improvement and a compelling rise in net income are countered by a disappointing stock-price performance. For the fourth quarter, revenue grew 15% year over year to $57.9 million, and earnings per share climbed to 47 cents from 38 cents. For 2008, the market expects an improvement in full-year EPS to $2.31 from $1.72 in 2007. However, the company's quick ratio of 0.63 is low and demonstrates weak liquidity. Shares have fallen 6.9% in the past year, netting the stock a price-to-earnings ratio of 26.62, which is slightly above the industry average. Advisory Board had been rated buy since May 12, 2006.

Additional ratings changes from May 15 are listed below.

Ticker Company Name Change New Rating Former Rating
ABCO Advisory Board Downgrade Hold Buy
AIP American Israeli Paper Mills Upgrade Buy Hold
ASEI American Science Engineering Downgrade Hold Buy
CGNX Cognex Upgrade Buy Hold
CMCSA Comcast Upgrade Buy Hold
GLUU Glu Mobile Initiated Sell
IKN Ikon Office Solutions Upgrade Buy Hold
MSCS MSC Software Downgrade Sell Hold
PII Polaris Industries Upgrade Buy Hold
PSB PS Business Parks Upgrade Buy Hold
PSTA Monterey Gourmet Foods Downgrade Sell Hold
SYNO Synovis Life Tech Upgrade Buy Hold
UTI Universal Technical Institute Downgrade Sell Hold

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

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