TSC Ratings' Updates: Microsemi

We've downgraded semiconductor manufacturer Microsemi(MSCC Quote) from buy to hold. Strengths include its revenue growth, largely solid financial position with reasonable debt levels by most measures and impressive record of earnings per share growth. However, we find that the stock has had a decline in price during the past year.

Revenue rose by 12.5% since the same quarter last year, outpacing the industry average of 7.5% and boosting EPS. Microsemi's debt-to-equity ratio is very low at 0.00 and is currently below that of the industry average, implying very successful management of debt levels. The company maintains a quick ratio of 4.1, which clearly demonstrates the ability to cover short-term cash needs. Its gross profit margin of 56.2% is rather high, having increased from the same quarter the previous year, but the net profit margin of 12.8% trails the industry average. Current return on equity exceeded its ROE from the same quarter one year prior, a clear sign of strength within the company.

Shares are down 34.6% on the year, apparently dragged down by the decline we have seen in the S&P 500, but don't assume that it can now be tagged as cheap and attractive. Based on its current price in relation to its earnings, Microsemi is still more expensive than most of the other companies in its industry.

We've downgraded Spartech(SEH Quote), an an intermediary processor of engineered thermoplastics, from hold to sell, driven by its deteriorating net income, generally weak debt management, disappointing return on equity, poor profit margins and generally disappointing historical performance in the stock itself.

Net income decreased to -$197.4 million from $1.3 million in the same quarter a year ago, significantly underperforming the S&P 500 and the chemicals industry. The debt-to-equity ratio of 1.2 is relatively high when compared with the industry average, suggesting a need for better debt level management, and Spartech maintains a poor quick ratio of 0.9, illustrating an inability to avoid short-term cash problems. Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior, a signal of major weakness within the corporation. Spartech's gross profit margin is currently extremely low at 8.8%, having decreased from the same quarter last year, and its net profit margin of -57% is significantly below that of the industry average.

Shares are down 47.7% on the year, underperforming the S&P 500, and EPS are down 16,375% compared with the year-earlier quarter. Naturally, the overall market trend is bound to be a significant factor, and in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.

All ratings changes generated on Dec. 18 are listed below.

Ticker	Company	Current	Change	Change
AWH	Allied World Assurance	HOLD	Upgrade	SELL
CMN	Cantel Medical	BUY	Upgrade	HOLD
ESIC	EasyLink Services	SELL	Downgrade	HOLD
KSW	KSW INC	HOLD	Downgrade	BUY
LPHI	Life Partners Holdings	BUY	Upgrade	HOLD
MSCC	Microsemi	HOLD	Downgrade	BUY
SEH	Spartech	SELL	Downgrade	HOLD
SWWC	Southwest Water	SELL	Downgrade	HOLD

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.

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