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TheStreet Open House

TSC Ratings' Updates: Southwest Airlines

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 July 24.

Tyco (TYC), which provides various products ranging from electronic security and alarm monitoring to fire-fighting equipment and breathing apparatus, and from water purification and flow control solutions to galvanized steel tubes, and armored wire and cable to various customers worldwide, was downgraded to sell.

The downgrade is driven by multiple weaknesses, which we believe should have a greater impact than any strengths and could make it more difficult for investors to achieve positive results compared with most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, disappointing return on equity, weak operating cash flow and decline in the stock price during the past year.

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