TSC Ratings' Upgrades, Downgrades: Nomura

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 June 4.

Angelica Corp. (AGL), which provides textile rental and linen management services primarily to the health care industry, has been upgraded to buy. For the first quarter, revenue increased 1.8% year over year to $109.7 million, and earnings per share swung to a 22-cent profit from a 12-cent loss. For 2008, the market expects an improvement in full-year EPS to $1.05 from 42 cents in 2007. Net operating cash flow has significantly increased by $10.4 million when compared to the same quarter last year. The debt-to-equity ratio of 0.55 is higher than the industry average. Its quick ratio of 0.98 is weak. Angelica Corp. had been rated hold since TheStreet.com Ratings initiated coverage on June 2, 2006.

AmeriSafe (AMSF), which through its subsidiaries markets and underwrites workers' compensation insurance, has been upgraded to buy. For the first quarter, revenue fell 0.8% to $82.3 million, while earnings per share improved to 59 cents from 42 cents. For 2008, the market is expecting a contraction in full-year EPS to $2.22 from $2.48. Net income increased 42% to $11.9 million in the same period. The debt-to-equity ratio is very low at 0.15, implying successful management of debt levels. Return on equity has improved slightly when compared to the same quarter one year prior to 22% and exceeds the industry average. This can be construed as a modest strength in the organization. With a price-to-earnings ratio of 5.95, the stock trades at a discount to others in its industry. AmeriSafe had been rated hold since Aug. 21.

Vornado (VNO), a real estate investment trust, has been upgraded to buy. For the first quarter, revenue grew 13% year over year to $756.8 million, and earnings per share surged to $1.86 from 97 cents. Recently, Vornado agreed to sell its 482,000 square-foot Tysons Dulles Plaza office building complex located in Tysons Corner, Va., for around $152.8 million. The company expects to gain about $56 million from the sale. On March 31, Vornado disposed its 48% interest in Americold Realty Trust for $220 million and as a result incurred a net gain of $112.7 million. Performance may be negatively impacted by an increase in operating and maintenance costs and lower occupancy rates and rents. Additionally, the lack of financing and refinancing facilities for its projects under development may hamper the company's profitability in the upcoming quarters.

Methode Electronics (MEI), which manufactures component devices, has been upgraded to buy. For the third quarter, revenue increased 31% year over year to $138.8 million, and earnings per share climbed to 26 cents from 13 cents. For 2008, the market expects an improvement in full-year EPS to 98 cents from 71 cents a year ago. With no debt to speak of, the company has a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Its quick ratio of 2.34 demonstrates an ability to cover short-term liquidity needs. With a price-to-earnings ratio of 11.02, the stock trades at a discount to others in its industry. Methode Electronics had been rated hold since March 7.

Nomura (NMR), which together with its subsidiaries provides investment, financing and related services, has been downgraded to sell. For the fourth quarter, revenue declined 65% year over year to $1.82 billion, and earnings per share swung to a 77-cent loss from a 9-cent profit. Return on equity has greatly decreased from the year-ago quarter and lags the industry average. This is a signal of major weakness within the corporation. The company's gross profit margin is extremely low at 3.5% and has decreased significantly from the same period last year. Nomura had been rated sell since Sept. 6.



Additional ratings changes from June 4 are listed below.

Ticker	Company Name	Change	New Rating	Former Rating
AGL	Angelica	Upgrade	Buy	Hold
AMSF	AmeriSafe	Upgrade	Buy	Hold
MEI	Methode Electronics	Upgrade	Buy	Hold
NMR	Nomura Holdings	Downgrade	Sell	Hold
VNO	Vornado Realty Trust	Upgrade	Buy	Hold

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