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 Monday, May 19. Dresser-Rand (DRC - Get Report), which designs and sells rotating solutions to the oil, gas and petrochemical industries, has been upgraded to buy. For the first quarter, revenue rose 16% year over year to $363.8 million, and earnings per share increased to 32 cents from 18 cents. For 2008, the market expects an improvement in full-year EPS to $2.10 from $1.25 in 2007. The company's debt-to-equity ratio, 0.44, is low, implying successful management of debt levels. However, its quick ratio of 0.84 is somewhat weak and could be cause for future problems. Return on equity has improved slightly from the year-ago quarter to 14%, but still trails the industry average. With a price-to-earnings ratio of 28.76, the stock trades at a premium to its sector peers. Dresser-Rand had been rated hold since May 8, 2007. American Railcar Industries (ARTC), which designs, manufactures and sells hopper and tank railcars, has been upgraded to hold. Strengths such as a solid financial position and an appealing valuation are countered by deteriorating net income, disappointing return on equity and poor profit margins. For the first quarter, revenue declined 1.8% year over year to $184.1 million, and earnings per share declined to 48 cents from 63 cents. For 2008, the market expects an improvement in full-year EPS to $1.82 from $1.75 in 2007. The company's debt-to-equity ratio is somewhat low at 0.89, implying relatively successful management of debt levels. Its quick ratio of 4.53 demonstrates an ability to cover short-term cash needs. The gross profit margin is extremely low at 15% and has decreased in the past year. Along with this, the net profit margin of 5.5% trails the industry average. Return on equity has slightly decreased from the same quarter one year prior to 11% and trails the industry average. This implies a minor weakness in the organization. With a price-to-earnings ratio of 12.58, the stock trades at a discount to others in its sector. However, we do not feel it is a good buy right now. American Railcar Industries had been rated sell since Sept. 13. Banco Macro (BMA - Get Report), which provides banking services in Argentina, has been upgraded to hold. Strengths such as its robust revenue growth and improvement in earnings per share are balanced by a disappointing stock-price performance. For the first quarter, revenue rocketed up 49% year over year to $257.2 million, and earnings per share increased to 70 cents from 58 cents. For 2008, the market expects an improvement in full-year EPS to $2.85 from $2.30 in 2007. The company's gross profit margin is rather high at 66%. Its net profit margin of 19% compares favorably with the industry average. Return on equity has slightly decreased from year-ago levels to 18% but exceeds the industry average. Shares have fallen 47% in the past year, netting the stock a price-to-earnings ratio of 7.88, which places it at a slight discount to others in the sector. However, we believe it is too soon to buy the stock right now. Banco Macro had been rated sell since TheStreet.com Ratings initiated coverage on April 26, 2007. China Precision Steel (CPSL), a steel processor, has been upgraded to hold. Strengths such as a solid stock price performance, a solid financial position and good cash flow from operations are weighed down by unimpressive growth in net income and poor profit margins. For the second quarter of fiscal 2008, revenue declined 21% year over year to $11.9 million, and earnings per share remained the same at 5 cents. The company's debt-to-equity ratio is very low at 0.22, implying successful management of debt levels. To add to this, its quick ratio of 1.88 demonstrates strong liquidity. Gross profit margin is currently lower than what is desirable at 33%. The net profit margin of 20% trails the industry average. Shares have jumped 83% in the past year, exceeding the performance of the broader market during that same time frame. The rise in price has netted the stock a price-to-earnings ratio of 28.43, which means it trades at a premium to the industry average. China Precision Steel had been rated sell since TheStreet.com Ratings initiated coverage on Feb. 25. Cellcom Israel (CEL - Get Report), which offers cell-phone services in Israel, has been initiated with a hold rating. Strengths such as notable return on equity, robust revenue growth and solid stock price performance are held back by weak operating cash flow and poor debt management. For the first quarter, revenue grew 31% year over year to $452.5 million, and earnings per share climbed to 78 cents from 51 cents. Return on equity significantly exceeds the industry average. The company's gross profit margin is rather high at 57%. However, its net profit margin of 17% trails the industry average. Cellcom Israel's debt-to-equity ratio is very high at 9.36, implying very poor management of debt levels. Its quick ratio, however, is somewhat strong at 1.04, demonstrating an ability to handle short-term liquidity needs. Net operating cash flow has decreased 35% year over year to $53.9 million. In addition, when comparing the cash generation rate with the industry average, the firm's growth is significantly lower. Additional ratings changes from May 19 are listed below.
|Ticker||Company Name||Change||New Rating||Former Rating|
|ATSG||Air Transport Services Group||Downgrade||Sell||Hold|
|CCOW||Capital Corp. of the West||Downgrade||Sell||Hold|
|COLB||Columbia Banking System||Upgrade||Buy||Hold|
|CPSL||China Precision Steel||Upgrade||Hold||Sell|
|ETEL||Etelecare Global Solution||Initiated||Sell|
|IWA||Iowa Telecom Services||Upgrade||Buy||Hold|
|MPEL||Melco PBL Entertainment||Upgrade||Hold||Sell|
|SIGI||Selective Ins. Group||Downgrade||Hold||Buy|
|SNS||Steak N Shake||Downgrade||Sell||Hold|
|TNP||Tsakos Energy Navigation||Upgrade||Buy||Hold|
|UCFC||United Community Financial||Downgrade||Hold||Buy|