TSC Ratings' Updates: Mattel

Next up is HealthSouth (HLS Quote), which we upgraded to hold from sell. Based out of Birmingham, Ala., this health-care firm operates inpatient rehabilitation centers and long-term acute care hospitals. The primary factors that have impacted our rating change are mixed -- some indicating strength and some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks.

HealthSouth's revenue growth has slightly outpaced the industry average of 3.5%. Since the same quarter one year prior, revenue slightly increased by 6.4%. Growth in the company's revenue appears to have helped boost EPS.

Regardless of the somewhat mixed results with the debt-to-equity ratio, the company's quick ratio of 0.73 is weak.

HealthSouth reported significant EPS improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive EPS growth over the past two years. However, we anticipate underperformance relative to this pattern in the coming year. During the past fiscal year, HealthSouth turned its bottom line around by earning $2.20 a share, vs. -$7.05 a share in the prior year. For the next year, the market is expecting a contraction of 81.4% in earnings (41 cents a share, vs. $2.20 a share).

The gross profit margin for HealthSouth, 17.8%, is rather low. Regardless of the low profit margin, it has managed to increase from the same period last year. Despite the mixed results, HealthSouth's net profit margin of 9.6% compares favorably to the industry average.

The company, on the basis of change in net income year-over-year, has significantly underperformed when compared to that of the S&P 500 and the health care providers and services industry. Net income has significantly decreased by 90.6% when compared year-over-year, falling from $468.2 million to $44.1 million.

HealthSouth had been rated a sell since Aug. 7, 2006.