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TSC Ratings' Upgrades, Downgrades: ASBC

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 16.

Associated Banc Corp. (ASBC), which offers various banking and nonbanking financial services, has been upgraded to buy.

For the first quarter, revenue declined 4.5% year over year to $379.5 million, and earnings per share declined to 52 cents from 57 cents. At 59%, the gross profit margin is rather high, and its net profit margin of 18% exceeds the industry average. Return on equity has slightly decreased from the same quarter one year prior to 12%. This implies a minor weakness in the organization.

Shares have fallen 9.1% from its price level of one year ago. Despite the decline, the stock still sports a price-to-earnings ratio of 13.41, which makes it more expensive than others in its industry. We feel that other strengths justify this premium. Associated Banc Corp. had been rated hold since Nov. 12.

Advanced Semiconductor Engineering (ASX), which provides semiconductor packaging and testing services, has been upgraded to buy. For the first quarter, revenue increased 27% year over year to $813.1 million, and earnings per share rose to 7 cents from 4 cents. For 2008, the market expects an improvement in full-year EPS to 41 cents from 33 cents in 2007.

Shares have risen over the past year, outpacing the S&P 500. Despite the price increase, the stock still trades with a price-to-earnings ratio of 15.12, making it less expensive than others in its sector.

It goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year. Advanced Semiconductor Engineering had been rated hold since Feb. 4.

SVB Financial (SIVB), the holding company for the Silicon Valley Bank that provides commercial banking products and services, has been upgraded to buy. For the first quarter, revenue declined 2.1% year over year to $150.2 million, and earnings per share climbed to 81 cents from 76 cents. For 2008, the market is expecting a contraction of 13% in full-year EPS to 2.94 from $3.36 in 2007.

Return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. The company's gross profit margin is very high at 84%, and its net profit margin of 18.60% compares favorably with the industry average. SVB Financial had been rated hold since April 1.

Energy Conversion Devices (ENER), which sells materials, products and production process for the alternative energy and technology markets, has been upgraded to hold.

Strengths such as robust revenue growth, a solid financial position and good cash flow from operations are balanced by weaknesses including disappointing return on equity and poor profit margins. For the third quarter of fiscal 2008, revenue more than doubled year over year to $70 million, and earnings per share swung to a profit of 17 cents from a loss of 17 cents.

For 2008, the market expects an improvement in full-year EPS to 0 cents from a loss of 63 cents in 2007. The company's debt-to-equity ratio is very low at 0.05, implying successful management of debt levels. In addition, its quick ratio of 3.09 demonstrates strong liquidity. The gross profit margin is rather low at 21%, and the net profit margin of 10.00% trails the industry average.

Return on equity has slightly decreased from the same quarter one year prior and trails the industry average. This implies a minor weakness in the organization. Energy Conversion Devices had been rated sell since Jan. 26, 2007.

United Stationers (USTR), which distributes business products including computer supplies and peripherals, has been downgraded to hold. Strengths, such as revenue growth, notable return on equity and an attractive valuation are countered by deteriorating net income, generally poor debt management and weak profit margins.

For the first quarter, revenue rose 5% year over year to $1.25 billion, and earnings per share fell to 88 cents from 90 cents. Return on equity has improved slightly when compared to the same quarter one year prior and exceeds the industry average. This can be construed as a modest strength in the organization. The company's gross profit margin is rather low at 16%, and its net profit margin of 1.7% trails the industry average. Net operating cash flow has significantly decreased from the year-ago quarter. In addition, when comparing to the industry average, the firm's growth rate is much lower.

With a price-to-earnings ratio of 11.14, the stock trades at a discount to its sector peers. United Stationers had been rated buy since Feb. 19.

Additional ratings changes from May 16 are listed below.

Ticker Company Name Change New Rating Former Rating
ACFN Acorn Energy Upgrade Buy Hold
AINV Apollo Investment Upgrade Buy Hold
ASBC Associated Bancorp Upgrade Buy Hold
ASX Advanced Semiconductor Engineering Upgrade Buy Hold
BOFL Bank of Florida Upgrade Hold Sell
CXPO Crimson Exploration Upgrade Hold Sell
DPW Digital Power Corp. Upgrade Hold Sell
ENER Energy Conversion Devices Upgrade Hold Sell
GEOY GeoEye Downgrade Hold Buy
HRZ Horizon Lines Downgrade Sell Hold
NR Newpark Resources Upgrade Buy Hold
NSYS Nortech Systems Upgrade Buy Hold
REPR Repro Medsystems Upgrade Hold Sell
SIVB SVB Financial Upgrade Buy Hold
UCTT Ultra Clean Holdings Downgrade Hold Buy
USTR United Stationers Downgrade Hold Buy
WSH Willis Group Holdings Upgrade Buy Hold

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

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