TSC Ratings' Updates: Research In Motion

We've upgraded Tower Group (TWGP Quote), which through its subsidiaries, provides a range of specialized property and casualty insurance products and services to small to mid-sized businesses and individuals in the northeast United States, from hold to buy.

The revenue growth came in higher than the industry average of 6.6%. Since the same quarter one year prior, revenues rose by 16.7%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.

Tower has improved earnings per share by 16.1% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, TOWER GROUP INC increased its bottom line by earning $1.92 versus $1.81 in the prior year. This year, the market expects an improvement in earnings ($2.87 versus $1.92).

The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Insurance industry. The net income increased by 16.2% when compared to the same quarter one year prior, going from $14.38 million to $16.72 million.

Net operating cash flow has increased to $23.13 million or 26.40% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -12.27%.

Despite currently having a low debt-to-equity ratio of 0.32, it is higher than that of the industry average, inferring that management of debt levels may need to be evaluated further.

Other ratings changes include:

Blackrock Kelso Capital Corp. (BKCC Quote): Upgraded from sell to hold.

Harte-Hanks (HHS Quote): Downgraded from hold to sell.

Southern First Bankshares (SFST Quote): Downgraded from hold to sell.

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.