TSC Ratings' Updates: Microsemi

The following ratings changes were generated on Thursday, Dec. 18.

We've upgraded specialty insurance company Allied World Assurance(AWH Quote) from sell to hold. Strengths include its largely solid financial position with reasonable debt levels by most measures and notable return on equity. However, we also find weaknesses including deteriorating net income, weak operating cash flow and a decline in the stock price during the past year.

Allied World's debt-to-equity ratio is very low at 0.22 and is currently below that of the industry average, implying very successful management of debt levels. Revenue fell by 44.6% since the same quarter a year ago, decreasing EPS. Net income decreased to -$46.4 million from $108.96 million, underperforming the S&P 500 and the insurance industry. Net operating cash flow decreased to $133.3 million, or 42%.

The company has experienced a steep decline in earnings per share in the most recent quarter compared with its performance from the same quarter a year age. However, during the past fiscal year, Allied World increased its bottom line by earning $7.52 vs. $5.71 in the prior year, and this year, the market expects further improvement in earnings to $8.

We've upgraded Cantel Medical(CMN Quote) from hold to buy, driven by its impressive record of earnings per share growth, compelling growth in net income, revenue growth, good cash flow from operations and expanding profit margins.

Net income rose 71.9% compared with the same quarter last year, to $3.3 million, outperforming the S&P 500 and the health care equipment and supplies industry. Revenue increased by 7.3%, boosting EPS but underperforming the industry average. Net operating cash flow increased by 445.1% to %5.4 million, surpassing the industry average cash flow growth rate of 21.5%. Cantel's 41.4% gross profit margin is strong, having increased from the same quarter last year, but its net profit margin of 5.2% trails the industry average.